Bill more hours. Raise billable rates. Find more clients. For decades, these have been the basic universal tactics for increasing law firm profitability. Yet you have to wonder: Surely after all this time, there must be other, more effective ways to get ahead?
The answer is a resounding yes! Modern BI and financial software tools give you the 24-hour, 360-degree view of firm finances and operations you need to increase productivity and performance levels and boost profitability. You can now dig into your data more deeply, track metrics more accurately, and make risk-adjusted decisions quickly. Here are five ways to maximize your law firm’s profitability in 2021:
1. Make profitability, not revenue, your priority.
When you track revenue, you only measure how much money your firm pulls in. Profitability metrics reveal a much more complete picture of your firm’s financial and operational health. Focusing on profitability helps you understand more factors that drive overall success.
For example, adapting to modern client demands may require that your firm assign competitive hourly rates, design success fees, and commit to discounts. You need to track and analyze not just revenue but also write-downs, costs, and matter leverage to come up with optimal figures that don’t undermine your profitability. With the right software, you can intelligently evaluate more data points to make evidence-based decisions regarding pricing, managing, and delivering legal services. The goal is to pinpoint and track factors that affect profitability, so you can eliminate problems and optimize the processes that foster its growth.
2. Enable lawyers to record more billable hours while working more efficiently.
Lawyers don’t necessarily need to work longer or charge higher rates to bring in more revenue. They often just need better timekeeping tools to capture more of the billable hours they are already working. AI-driven timekeeping software is always on, indefatigable, and follows rules precisely. It automatically records billable hours that are often otherwise lost to human error, forgetfulness, and interruptions. The software also enforces outside counsel guidelines and firm, client, and matter rules to increase accuracy and significantly reduce write-offs.
At the same time, automated time entry helps legal professionals work more efficiently. Timekeepers finalize AI-generated timesheets in minutes and take back the hours they used to waste manually tracking time and constructing timesheets. An advanced timekeeping solution reduces write-offs, helps fee earners find and record more time each month, and frees lawyers to perform more valuable work—all of which helps boost profitability.
3. Digitize and automate prebill processes to increase realization rates.
In the past, getting invoices out the door quickly meant harrying billing partners to manually review, edit, and approve printed prebills. It involved long delays while ping-ponging stacks of paper across the firm.
Now, paperless prebilling software allows you to electronically distribute prebills to attorneys in a flash. The digital format enables lawyers and billing specialists to share on-screen notes, fix block billing time entries in seconds, quickly split time and disbursements, and otherwise optimize the billing review, editing, and approval process. Billing teams process changes faster and instantly send out more accurate invoices to clients. Cash flow improves. Billing partners can reallocate saved hours to more valuable work, and billing departments can process more bills without hiring more personnel.
4. Enhance visibility to embed accountability and compliance into firm culture.
The right software provides a secure foundation for accurate data analyses that deliver powerful profitability insights. Customizable and role-based dashboards and advanced reporting make productivity and performance metrics highly visible across the firm. The resulting increased visibility into a broader range of metrics supports a unified culture of accountability and compliance.
Rather than prioritizing billable hours, attorneys can also track metrics such as utilization and realization rates to focus on personal performance. You can regularly report on profitability metrics using multiple scenarios to assess progress. Perform a lawyer-by-lawyer analysis and gamify how attorneys stack up to one another increase engagement. A bit of friendly competition helps more people understand what actions can improve profitability.
5. Forecast and monitor the firm budget more accurately.
Creating a budget can be a hefty challenge; staying on budget can be even heftier. Thankfully, today’s budgeting and forecasting software carries all the weight. It helps you monitor workloads, revenue, and expenses to stay on budget. Perform monthly or quarterly variance reviews to spot and correct issues that can push your firm off-budget. When unexpected challenges arise, you can quickly reforecast to adapt without missing a step. Daily updates can help you predict cash flow 3-4 months ahead. Produce alternate budgets for multiple scenarios to make the most cost-effective choices. Project EOY results by combining actual YTD values with budget values for the rest of the year. Then, use that EOY projection to drive meaningful conversations with stakeholders and make smarter financial decisions.
These are just a few of the ways BI and financial software can help you maximize profitability in your firm. If you’d like to learn how Iridium’s software can help you in 2021 and beyond, Schedule a demo with us now.