Billing rates and profitabilty

Basically billing rates consists of three basic elements:

1. compensation (salary + benefits)
2. firm overhead
3. profit

One rule says, that each of 3 components comprise about 1/3 (one third) of the rate. Also there is another rule 50/30/20 which says that 50 percent goes for compensation, 30 percent for overhead and 20 percent is profit.

Profitability rule of three

Mr. Brown offered the rule of three:  If an attorney bills at a rate of $300 per hour, the first $100 goes to salary, the second $100 goes to compensation and the third $100 is profit.  Therefore a 1% discount in price equates to a 3% cut in profit. The point is the mix of cost, discounts and leverage – whatever the bill rate – has a direct impact on profitability.

Realization rate

Realization is the difference between standard rates billed and money collected.

So if 10 hours of work is done, but a firm only collects on 80% of that fee – realization is 80%.

Three things impact realization:

1) Discounts,

2) Write downs (before the client sees the bill), and

3) Write-offs.

Of the three, write-offs become an obvious place to start, because that is time billed that the client saw on the bill but obviously found no value in. Or in other words, the client is saying that work should not have been done.[1]

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[1] http://www.geeklawblog.com/2010/11/end-of-wrtie-offs.html

The impact of emotions in legal services

Do you know that lawyers are among the top professions with the most psychopaths?

Dr. Kevin Dutton in his book The Wisdom of Psychopaths claims that some professions attract people with psychopathic tendencies, and lawyers are second on the list (the first in the list are CEO’s and the third is Media people who works on TV and radio).

A quote from a successful young British attorney Dutton interviewed perfectly illustrates the psychopath attitude in lawyer’s profession: "Deep inside me there's a serial killer lurking somewhere," the unnamed attorney told Dutton. "But I keep him amused with cocaine, Formula One, booty calls, and coruscating cross-examination."

Dutton describes psychopaths as brilliant, calculating, often highly intelligent people, who feel no emotion and don't even understand what an emotion is or why non-psychopaths feel them.

I also found one good example in the article about Lawyers Emotional Intelligence[1] I want to share: In April 1955 Dean of Harvard Law School Erwin Griswold noted that "Many lawyers never do seem to understand that they are dealing with people and not solely with the impersonal law”.

The reputation of lawyers generally has suffered from the image of lacking interpersonal sensibilities, such as compassion. Further, the high rates of divorce, suicide, addictions and plain dissatisfaction among lawyers is evidence of less than satisfactory emotional balance across the profession.

So now it’s quite clear that people with lack of empathy and emotions might be qualified as those who have high risk to become a psychopath, divorce, suicide, get addictions to drugs or alcohol and lawyers are on the top of professions.

Using your Emotional Intelligence (EI)

Emotional intelligence refers to "the abilities involved in the recognition, use, understanding and management of one’s own and others’ emotional states to solve problems and regulate behavior" a definition taken from Mayer and Salovey.

It‘s scientifically proven that best analyses and decisions are made when we engage the emotions, as well as the intellect. Lawyers can upgrade their performance by adding additional data available from their own and others’ emotions to enhance their cognitive skills.

And what is really interesting here that Emotional Intelligence does not correlate with IQ. Some professionals, such as lawyers, exhibit high average IQ scores (in the 115-130 range), while at the same time scoring lower than the general population on EI (85-95).[2]

Legal services as high-emotion services

High-emotion services trigger strong feelings before the service even begins. So in general it’s services, related to major life events such as birth, marriage, illness and death fall in to this category, as well as legal services. For example legal services for a divorce can have big impact on client’s assets and finances, child custody and etc., so legal services should be considered as high-emotion services too.

From the professional service provider’s or salesman perspective we usually think that features and benefits of service/product mostly plays role for our customer in process of buying something and we ignore the role of emotions.

Managing emotions can have a big impact of expectations and perceptions of quality and value, enhancing customer’s satisfaction and loyalty.  Professional service providers should identify emotional triggers, respond early to intense emotions and enhance customer’s control.

Indentifying emotional triggers

The need for service by itself can be emotional trigger and company’s underperformance can heighten negative emotions such as anger and fear. But emotions also present opportunities to exceed customer’s expectations. So it’s very important to have a strategy how to identify the feelings client have about the service and then minimize negative emotions. In some cases a client who comes to a lawyer may feel fear of being sued and in other cases some person might be feeling anger to sue somebody. In every situation managing of client’s emotions should be different. But you cannot ignore emotions in general.

Respond early to intense emotions

Here we go to the second step – response. If you fail to recognize and respond to customer’s emotions they might get a feeling of being scared, frustrated or even ignored. So what you should do? Just inform and prepare customers for “what’s next”.

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[1] Emotional Intelligence for Lawyer By Ronda Muir, ESQ.

[2] Emotional Intelligence for Lawyer By Ronda Muir, ESQ.

Sales in Law Firm

Remember, when people buy drills, they actually they buy holes. So when people come to lawyer they need a solution, not product features. Of course it’s important to show your ability to solve any legal problem, but keep focusing on client needs and offering right solutions instead of talking how big your law firm is, how many offices you have, which law school you attended or what are your practice areas.

There are several strategies that could help to achieve better results on sales and they are pretty simple if you use them.

1. Up-Selling
2. Cross- Selling
3. Re-selling
4. Making law product that could be sold more than once.

Moving from transactional client to constant client

Another issue is that usually clients have 1 problem and then seeks who could solve it. After things are done client moves away because nobody from the law firm takes responsibility to develop relationship, ask for more work and cross selling opportunities. It’s also because of the attitude that clients usually comes from referrals rather than active sales. When a lawyer is done with client’s case, he knows that there will be another new client, so he focuses on serving new client.

Also if your positioning is based on some niche expertise it might be not clear for your client that you still have more people with different specializations in your law office. So after completing the assignment don’t miss a chance to introduce other lawyers to the client and try to seek more cross selling opportunities. Don’t wait to long, because the client will your competitor to solve his another problem if he is not familiar of other law practices you do.

Small and medium size law firms usually do not use modern client relationship management (CRM) software, so they have difficulties tracking the progress in client relationship and see when the last activity was carried for the client. It’s worth to think about simple function – look at your recent cases for 6 month period and if there are any clients with no activity at least for 2 or 3 months you should contact them and remind about yourself immediately. The best way to do this is to call and offer a meeting, or just make a phone call, but keep in mind that less effective is e-mail communication (but of course it’s better than nothing).

Client can be satisfied during the process of buying legal services, but today it is very important what client experience after the purchase is made and legal services already rendered, so called Post-purchase experience. If we forget to contact the client after the transaction, it’s possible that he will not think about us too much. If we take a moment to ask how things are going, we can build good sense of client care and extend client’s positive experience. And it’s one of the most important factors choosing re-purchase or recommendations to others. 

1-2-4 rule in legal sales

It is four times harder, and takes four times as much effort to get a totally new client, than to develop and get work from an existing client. It is two times harder to get work from an ex or “orphaned” client, even if you only worked with them some years ago. The easiest is to get work from your current clients through up-selling, cross-selling and referrals.

Generally law firms do their business development the wrong way round. They spend their time, energy, nerves and budget trying to get totally new clients (via networking, cold pitches etc), while neglecting current and ex-clients. This is a tragedy. They could make their life easier by first focusing on whom they know now, then whom they used to know, and then on the new people.

Who should do the sales?

By default partners are the source of the clients in law firm. Sometimes senior lawyers over the years of working with firm’s clients get their trust and they start to refer their peers directly to senior lawyers, not partners. But these are very rare cases. On the other hand more and more modern law firms have specialized non-lawyers sales professionals, so called professional business developers (PBDs).  

Julie Savarino, Managing Director at Business Development Inc. say that PBDs are beneficial because they save billable time; conserve opportunity costs; identify, respond to and generate major new matters; coordinate firm-wide client contacts; and create efficiencies in the business development process. She also claims one interesting thing that most effective PBDs are lawyers, but not necessarily lawyers who are practicing law. Or we can add, that most successful are those, who are not practicing anymore.

“What I've learned along the way—most successful salespeople are lawyers who don't practice anymore,” says John Hurley, former Chief Business Development Officer at DLA Piper[1].  According to Mr. Hurley these people can build instant credibility and trust and they can talk with clients in a very educated way. They understand who to bring in to make something happen.

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[1] Why law firms are turning to non-lawyers for sales help by STEVEN R. STRAHLER