This is the next article in my discussion addressing the common question from law firms everywhere:
“How do I bring in clients?”
Before we get into it, make sure you’ve checked out my previous blog article that discussed how most law firms are managed (hint: it’s not great). In the article, I explained that bringing in clients (in the wrong way) actually tends to decrease profit rather than increase it.
In other words, while a firm may actually have more cases, the managing attorney will watch his or her profit margins drop just like this:
So let’s talk about how you can make things go a little more like this instead:
First, we’re going to look at why it’s important to understand the concept of profit margins in and out.
I’m also going to look at why it’s a mistake to try growing your practice without first working on your margins, and how to go about fixing your practice so you can go ahead and start bringing in clients.
Let’s get to it.
I’ll start by taking a quick look at the “profit margin problem“ that most law firms experience.
Here’s an example:
Suppose Joe Attorney is a one-person operation; he’s only got a legal assistant or paralegal and he’s renting a small office. Joe does $250,000 per year in revenue and earns a profit of $150,000. In other words, Joe’s profits are sixty percent of his revenue.
Then, Joe decides to work on more cases without making his firm operate more efficiently first. His revenue jumps to $400,000, and his profits jump to $200,000.
Notice anything wrong with that? Joe had to bring in an extra $150,000 in revenue to make an extra $50k.
This is common in law firms; the harder the attorney works, and the more they grow their practice, the smaller their share of that revenue becomes.
This is different from successful businesses, which see profit margins go up, or at least stay somewhat steady, as they grow.
In other words, for most lawyers, the harder they work, the smaller the rewards tend to get. This is why I say that trying to grow your revenue without first making sure you’re keeping as much of it as possible is pretty insane.
Focus on Your Profit Margins Before You Try to Bring in More Clients
In my article on why law firms should focus on conversions, I told the epic tale of Joe Attorney and Jill Attorney. The point of that article was how, by improving the intake process, Jill could grow her practice exponentially while spending no more on marketing than ol’ Joe.
Let’s expand this concept out a bit:
For our purposes, Joe and Jill are both criminal defense lawyers. They each handle a low-level misdemeanor for a $2,500 flat fee. Their net income at the end of the day, however, is quite different. Let’s look at why.
Joe’s approach to growing his income begins with “get more cases.” He spends $100 more on marketing this month, and that outlay yields ten extra phone calls.
This is a cost of $10 per call. Joe then converts twenty percent of his calls into clients. So his $100 yields two new clients at $2,500 each. So Joe’s new inflow is $4,900 ($5,000 of revenue minus the $100 marketing spend).
Joe devotes an average of twenty hours (in both administrative and substantive time) to each of these new matters. That’s a total of forty hours. Joe earned $122.50 per hour ($4,900/40 hours). Joe’s pretty happy about this and wants to grow his practice. So he then devotes an additional $100 to new marketing.
Now the trouble begins…
Joe is a busy chap. His second $100 marketing spend increases his workload, and he has to give his assistant/paralegal more hours to help him cover everything. Let’s say Joe incurs an extra $200 in labor costs.
The second $100 in marketing only yielded $4,700 ($5k in revenue minus $100 for marketing minus $200 in labor).
Joe also has to devote forty hours to each of the cases brought in by the second $100.
So he only earns $117.50 per hour on these cases ($4,700/40 hours). Joe again decides to grow his practice. So he spends more on marketing. His profit margins just continue to spiral downwards as a result.
Jill doesn’t like the example that Joe sets. She decides to take an approach of saying, “before I bring in more cases, let’s make sure I make as much off of each case as possible.”
She decides to make her day-to-day operations much more efficient (more on how she does this below).
Jill can now resolve a $2,500 misdemeanor, with the same result as Joe, in fifteen total hours instead of Joe’s twenty. Now that Jill is making as much off each case as possible, she looks for more cases.
Before worrying about getting more calls, however, she’s going to make sure that she converts as many of the calls she can into consultations. She works on her conversion process and, as a result, turns thirty percent of her calls into clients as opposed to Joe’s twenty.
Now, she’ll focus on how she gets those calls. She focuses on making sure she’s using the most cost-effective marketing approaches. Her $100 in marketing spend yields 12 phone calls as opposed to Joe’s ten. This is a total cost of $8.33 per call.
Do you see what Jill did?
As opposed to solely focusing on getting more calls. Jill fixed her practice from the inside out — meaning she started with the cases she already had and worked her way outward.
Let’s see the net result of this after each spends an additional $200 on marketing. Here is the cash flow which resulted from that extra $200:
Notice that $200 of new marketing brought Joe $9,600 of net income.
That looks pretty good until you realize that it brought Jill $17,300.
Why is that though?
First, Jill worked on how efficiently she handled cases before anything else. As a result, she didn’t have to increase payroll when she brought in new business; she could get more done with her own time.
Second, she focused on improving her conversion process before she focused on getting more calls.
When she did decide to get more calls, she focused on more cost-effective methods. The net result of this is that she received twenty-four calls and converted thirty percent of them (for a total of seven new cases). She then didn’t have the extra overhead associated with handling those cases.
The moral of this story is to grow your firm from the inside out.
This means that you have to focus on handling the cases you currently have before worrying about anything else.
Second, have your conversion process squared away before you even consider trying to get more calls.
Take this into consideration: Only about 22% of businesses are satisfied with their conversion rates. If you’re not happy with conversions, why push for more clients before you fix the issue?
Third, get those new calls in the most cost-effective way possible. Following this inside-out approach before asking yourself, “How can I bring in clients?” is critical.
The Three Areas to Grow Your Firm From the Inside Out
After reading the previous, you get the point that you need to grow your firm from the inside out.
Of course, the bulk of attorneys will tell you that they operate efficiently and do an excellent job with conversions. Trust me when I say that if you think you’re good at operating efficiently and converting, then you’re probably not.
Because there is always room for improvement, and if you’re not always trying to move forward, you’ll quickly get stuck. So, when trying to improve your operations, as Jill did above, focus on three areas:
- Handling a case in as few hours as possible (without sacrificing results or customer service).
- Converting more of the calls you already receive.
- Getting new calls through the most cost-effective means possible.
As much as I like to talk, I realize that this article is getting long. As such, here are some articles which will help in each of the three areas:
Why do you feel so many attorneys solely focus on getting calls instead of improving efficiency from the inside out? Please chime in through the comment section below!