Resources

Red Cave Law Firm Consulting's Technology Blog Series (from CEO Jared D. Correia, Esq.)

2024 Quarter 1

March 28, 2024: Writing in the Margins: Just How Much Does Your Overhead Cut Into Your Revenue?

Law firms often focus on gross revenue, when calculating how much they make.  But, there are expenses that go into running every business, including a law firm.  And, gross profits aren’t what you really make.  What you really make is your gross profit minus the cost of expenses for running your business.  And, this can be expressed in a number of ways.  Knowing your profit margin is useful for finding out how much you ‘net’, in terms of revenue from your practice.  You could also consider the notion of an effective hourly rate = how much you make per hour, minus your case expenses.  Understand that, and you know what you truly make in your business.

Now, to figure out your profit margin, you need to have a strong grasp on your expenses – and, this is where law firms often fall down.  While it’s relatively straightforward keeping track of gross revenue using standard law firm tools like time & billing software, or law practice management software – law firms generally do not do a great job of keeping track of expenses; and, the majority of law firms budgets are too broad, for making effective calculations, as to cost types, including for specific cases, and with respect to administrative expenses.

So, if you want to get to the bottom of how much you’re making these days, you have to pay more attention to your budget, including attributing expenses at a much deeper level than you are right now – because more sophisticated calculations require more specific data inputs.

March 22, 2024: Profit Center: How to Feel More Confident About New Hires

Especially in the current job market, it’s important not to overextend yourself in hiring for new attorneys or staffpersons.  But, since lawyers aren’t very good with math or data, hiring often becomes a real ad hoc adventure.  Most attorneys hire like they do everything else = they guess about what they can afford, and what they can take on.  That, however, can be dangerous, when it comes to hiring, because law firms can overpay (and waste money) or underpay (and risk losing a candidate, or good employee); and, if you spend beyond your means, it may mean that you need to move on from an employee you don’t want to move on from, because you’ve gotten way out over your skis.

So, it makes sense to perform, at least, a basic financial analysis – before making a new hire.  And, for attorney hires, this can be simpler than for staff hires, since staffpersons may not bill directly.  For those staffpersons, this is a bit more of an art than a science, in determining revenue impact on the firm, from, say, more client engagement; but, for new lawyer hires, the calculus is a little more straightforward.  First, you need to determine how many available billable hours (or, work hours) you have for the new hire, within the practice area to which they’ll be affiliated.  Then, calculate the value of that work.  On the expense side, apply a salary figure.  Then, add employment costs, and benefits, if applicable.  Next, add administrative costs for the role.  Tally up the numbers, and see where you stand.  Can you generate a profit?  How much?  The idea is that each employee of your law firm (administrator or attorney) will be a ‘profit center’ for you – if that can’t happen, then you shouldn’t hire.  This analysis may seem obvious; but, busy attorneys usually don’t engage it.

If you are hiring an attorney who is bringing over a book of business, and/or to whom you’re offering a bonus structure, you’ll need to build that into your financial calculations, as well.

March 17, 2024: Depth Perception: Don’t Overvolunteer

A lot of attorneys, new and seasoned, volunteer for everything under the sun, until they’re so busy, they just wanna puke.  Now, that’s not the goal of volunteering.  When it comes to working with organizations, legal-specific or otherwise, the idea is not to overwhelm yourself – but, to actually generate business, based on your in-person networking and referral marketing efforts.

But, it’s hard to do that if you can only spend a microscopic amount of time on your commitments, or none at all.

Of course, there’s a simple solution, here – that’s maybe easier said than done – which is not to overcommit.  But, it is difficult to turn down opportunities, when you feel like, as a young lawyer, there may not be all that many others.  And, as a more experienced lawyer, you might feel like everybody wants a piece of you.  In either case, it’s hard to say ‘no’.  But, one of the most important things you can do as a businessperson is to train yourself to say ‘no’ to opportunities that aren’t really a fit for you, or that you don’t have the bandwidth to accommodate.

And, your membership roster is a good a place as any to start to trim the fat, and work on your ‘no’ muscle.

So, if you’re a member of your state and local bar association, and one other networking group, maybe just do that.  Give yourself the time and space to write for those organizations, to participate in meetings, to set up and speak at programs, and more.

You’d be surprised what a little concentrated effort can do.  And, your results (as well as your revenue) should improve.

You can’t be everywhere, all at once – so, stop trying to be.

March 10, 2024: Visual Aid: Workflow Management Can Be Different Now

Law firms have developed workflows in much the same way for years and years.  And, those are standard task lists, with timekeepers and reminders attached.  For someone who is trying to learn a workflow – or, even, to better understand them – that can be kind of daunting.

Like: ‘Hey, learn this new thing’ – and: Wall of Text!

Now, most people are visual learners.  And, the text-based model for workflow management doesn’t work for everybody.

Fine, okay.  But, what’s the alternative?

Video is a good option: it’s the most visual of formats.  And, for visual learners, it’s a bonanza + the easiest way to learn.

And, there are a million different ways to create video content (phone, tablet . . . camcorder?), as well as an equally significant number of methods for publishing video (including privately) via media like YouTube and Vimeo.

But, perhaps the best option for allowing your team access to your innermost workflow-related thoughts is Loom, an asynchronous video publication tool that is being used for exactly that purpose.

So, if you’ve got trouble stitching together your law firm workflows, maybe you just need a new loom?

Plus, Loom can be used for other work conversations, as well, in much the way that businesses use Slack.

February 26, 2024: Ringer: Would Recommend: Attorney Recommendations Can Complement Client Reviews

Client reviews are fantastic marketing tools for any business, including law firms.  Testimonials drive conversion, because it is a window into how lawyers have had success with other clients.  Law firms place testimonials on their websites, and try to get as many client reviews as they can on directory profiles and social media profiles.  It’s really important, but can also be kind of a slog.  Many people won’t respond, the process can be hard to manage without software and sometimes reviews don’t get published.  Not that you shouldn’t do it; but, it’s kind of a pain.

You know what’s often easier: Getting reviews from your colleagues, who can also speak to your professional competence.  Generally speaking, it’s less unwieldy to get another lawyer to write something nice about, especially if you do the same for them, or if the two of you regularly pass referrals back and forth.

On most platforms, reviews from colleagues are called ‘recommendations’; and, you can request these directly from your colleagues.

If you’ve been frustrated getting client testimonials, and need a break, try a little help from your friends.

February 23, 2024: Service Charge: Your Law Firm Isn’t a Bank, So Stop Acting Like It Is

Law firms have traditionally extended credit to clients by billing in arrears.  This is, in fact, the most common way for law firms using an hourly billing model to invoice their clients.  That’s why you hear advice like: Make sure to get the most you possibly can upfront/Charge the most significant retainer you can.

But, let’s be honest.  That’s not a client-facing model.  That works for law firms, sure.  But, if I’m a legal consumer, I’m not into paying a lot of money right away, before my service provider (in this case, the law firm) has even proven itself.  It’s kind of the opposite problem that attorneys who bill hourly face.

So, this becomes a difficult balance to strike: How much can you charge clients right away?  And, how long can you wait before you bill them next?

Well, this is, in part, an argument for taking credit cards, via epayment models, because that allows law firm clients to pay more upfront, and removes the creditor burden usually placed upon the attorneys – that shifts to the credit card company.

But, this also illustrates the viability of newer school law firm pricing models, like products, subscriptions and evergreen retainers.

February 16, 2024: Change the Narrative: Your Invoices Probably Need Better Billing Descriptions

Every interaction a law firm has with a client is a marketing opportunity, a chance to cement your value as a service provider  And, there’s actually no better place to solidify that relationship than through your invoicing.  It’s a continuous, repetitive option for reminding your client of what you’ve done for them.  It places your value proposition in stark relief.

And, yet – many law firms squander this opportunity by using unrecognizable codes and short-form narratives in their billing.  Instead of trying to rush your bills out the door, craft them instead.  Utilize billing codes that even clients can understand; and, avoid lame abbreviations (looking at you, ‘TC’).  Build effective descriptions for each billed item – using macros or software that can help you to draft those quicker.  Indicate where you haven’t billed, by placing a nice, fat ‘NO CHARGE’ indicator on that entry.

This is the short list; but, if you start to look at your invoice standing in the shoes of your clients, you’ll get a better sense of whether and to what extent your billing platform works – and, you can better align your service provision with your clients’ expectations.  And, if you can do that, you’ll likely make more money, and increase your clients’ happiness, to boot.

All good things.

February 2, 2024: We Can Work It Out: Standalone Task Management Software

Smart law firms everywhere are adopting workflows, for a whole host of reasons: to promote efficiency, to reduce malpractice risk and to more effectively manage remote employees.  It’s probably long overdue, honestly.  But, as attorneys have embraced workflow management, some have discovered that their existing tools are lacking for the purpose.

So, if your case management software or your productivity software isn’t packing the punch you hoped, in terms of task management, there are a lot of standalone tools that might be a better fit for you, including: Notion, Trello, Asana and Taskade.  Neither is that an exhaustive list.  LegalBoards is a legal-specific tools, that integrates with Clio and MyCase.

These tools can also potentially be integrated with your existing law practice management software – if not directly, then via a bridging tool like Zapier.

So, if you want your workflows to actually, you know, work – you’ve got some options.

January 23, 2024: 2FA 2day: Anniversary Date: You Should Replace Your Hardware Devices on a Schedule

Law firms tend to let their hardware run . . . and run . . . and run – until it can’t run no more.  Most often law firm hardware breaks down, wheezing.  Now, I don’t want to say that attorneys are cheap; so, let’s call them ‘thrifty’, instead.  But, the fact of the matter is that, the longer you run old hardware, the more susceptible you are to data security issues, spiraling repair costs and efficiency downgrades.  It actually makes more sense (and, it’s cheaper – for a whole host of reasons) to replace your hardware more often, on a regular schedule – and, this is a lot easier (and less expensive) to do in an environment where law firms are using less and less hardware, given the adoption of cloud software.

Take the example of an old laptop; and, I’ve seen law firms running computers that are over a decade old.  One of the problems with that strategy, which is ostensibly cost-saving, is that the computer is slower than a newer device, with updated technology, would be.  If you’re running an old laptop, it likely doesn’t have a solid state harddrive, which improves performance and lasts longer than a traditional harddrive.  That and other upgrades mean that any new laptop you buy, to replace your ancient device, is going to improve your speed and performance, which will make you more efficient.  Also, law firms that use creaky laptops may not upgrade their operating systems; and, if support for those systems is sunset, that becomes a massive security loophole.  Just FYI – if you’re still on Windows 7, support for that product ended over two years ago.  Now, you can still upgrade to a new operating system on your existing device; but, your old laptop may not run that program at peak performance.  Plus, you can only apply duct tape to those old laptops for so long, before you’ll get sick of paying for short-term repairs on a recurring basis.

The fact of the matter is that technology hardware, like computers, are designed to become useless; it’s called planned obsolescence – and so, that means that your laptops, for example, are only meant to last 3-5 years, at most.  Accordingly, your laptops, and other hardware, should be replaced on a similar schedule.  Ideally, you make this part of your policies & procedures, as well, in order to codify the strategy.

January 16, 2024: Buried Treasure: Report Card: What Do the Numbers Say About Your Law Firm?

Lawyers make ad hoc decisions about business management, all the time.  But, those decisions are often wrong – because they’re built on false assumptions about how the business works.  Attorneys often overestimate how much money they make, and underestimate how much money they pay out, in terms of case expenses and overhead.  That leads to a lot of disappointment, as you might imagine.

But, there is a pathway to make better decisions about how to run a law firm – and, as it turns out, the data’s right there in front of you.  Most law firms are using case management software or accounting software, which is where law firm financial data is arrayed.  The majority of attorneys capture that information for tax and billing purposes only; but, they don’t use it for anything else.  But, each of those systems include custom reports and useful dashboards, that can provide you insight into the financial health of your law firm.  Want to know how much you have racked up in accounts receivable – you can get that number down to the second decimal point?  How fast are you working – check your utilization rate?  What’s your collection rate? – if it's too low, you can then look at ways to collect more money, faster.

If you want to get a head start on accessing data, and making better decisions about managing your practice, based on that data – it’s at your fingertips.  Start by checking in on the template reports that your software tools offer, and then stop making choices like your hair’s on fire, and get more circumspect about your business management.

January 13, 2024: Trail Mix: Capturing Client Data is a Broader Conversation Now

It’s always been important for law firms to archive the entire set of communications between attorneys, staff and clients (and leads).

And, that’s become easier to do, over time, as technology has advanced.

The cloud made it easier to access that data across devices and in different places; it also democratized the buy-in and continuing costs for law firm technology, so more law firms could access it.

Case management software, as a relational database, allowed for attorneys to capture data across systems, and organize it via matters.

Customer relationship management software exists, in part, so that attorneys can aggregate lead data.

Even texting, typically done on lawyers’ own smartphones, has made it into the official record, as it were – because there are now business texting applications, and many softwares are building in text messaging as a feature.

This is important for two main reasons.  First, the more easily you can click on a case file, and review all associated client data, the more efficient you can be, and the more money your law firm can make.  Second, if you ever get into a malpractice or legal ethics issue, you’ll be in a far better position if the ‘he said-she said’ defense is replaced by a coherent audit trail.

January 3, 2024: Melting Pot: Should Law Firms Start Hiring More Non-Lawyers?

Hiring is rough right now.  It’s got law firms everywhere rethinking how and why they hire.

One trend that is manifesting is that attorneys are beginning to expand their vision of who can and should be hired by a law firm, by looking at non-traditional roles within the law firm.

For the most part, law firms have hired for three roles: lawyers, paralegals and administrative staff.  But, as law firms begin to reformulate how they operate, that has opened up roles for human resource managers, chief operating officers, chief financial officers, sales directors, intake specialists, customer success associates, and similar roles – that you far more often see in technology companies.

In some cases, these new hires are cheaper and carry less baggage than do attorneys.  In some cases, they have training and a skillset that attorneys just don’t have.  And, in other cases, they buttress a new approach to running a law firm, eg – customer success personnel meeting a renewed focus on intake.

It’s a brave new world for lawyers in so many ways; but, if you’re struggling to find the right people, maybe it’s time to look for new sorts of people.