Lawyers: Use this test to determine the profitability of your flat fees
May 7, 2015
Many of my coaching clients who are confident in their hourly rates are concerned about ways of determining profitability for their fixed price, or flat fee, services. They want to know how to reach a profit margin that will make them the kind of money they need to be successful.
Profitability is a term that is thrown around in business settings, but people often use the word without knowing what it really means. In order to define it, let’s first talk about what profitability is not.
When I talk about profitability, I’m not talking about what you or anyone else thinks is a fair price. “Fair” is a relative term, and everyone has his or her own idea of what that means. Whose idea of “fair” are we talking about? Fair to you? To the client? Is there some sliding scale of “fair” out there? Of course not.
Profitability also has nothing to do with what the client would wish to pay. Most people are looking for ways to save money. But you are not in the business of providing the cheapest, bargain priced, clearance rack service. You are in the business of providing excellent service. And excellence costs money. If the client doesn’t want to pay the rate you need in order to be profitable, then they are not the right client for you.
I’m also not talking about market expectations. Just because your competition charges a certain rate, that doesn’t mean that the service they are providing their clients is on par with yours. Their overhead may be different or their staff may be larger or smaller. They may cut corners or provide extras you aren’t aware of. You can’t base your rates on what your competition charges.
The Acid Test for Determining Profitability
All that you need to be concerned about here is figuring out what you need to charge your clients in order to ensure that your business is profitable, that it’s making you money.
Many people have complex ways of figuring profitability. But determining what you need to charge your clients in order to be profitable does not have to involve long drawn out calculations.
There is a straightforward, simple way to determine profitability. It’s what I call the “Acid Test.”
- Calculate the amount of time it will take to provide the service. This includes your time and your staff’s time.
- Figure up the cost per hour for that time. Include the amount your work is worth per hour and the cost of your staff’s work.
- Then multiply those two figures to arrive at the amount it costs you to provide the service your client needs.
But that number does not make you a profit. That number only covers your costs. Note my emphasis: Your costs. Not the client’s cost. That is the minimum amount you need to make just to break even. You can’t run a profitable business that way.
To make a profit, you need to build in a 50 percent gross profit margin on top of your total cost for the service. So basically, take what it costs you to cover your expenses, and then double that number. That is the amount you need to charge the client in order to make a profit. It’s that simple.
If you apply this simple acid test to your fees for service, you will become profitable.
Attorneys: Learn Greatness in 200 Free Steps
April 14, 2015
Filed under: Uncategorized — admin @ 4:08 pm
Greatness is rarely an overnight experience. Anyone who has watched great litigators try cases knows these attorneys’ skills are the results of years of trial work. They didn’t get great at trying cases by accident or by deciding to walk into a courtroom for the first time that morning.
Talent can be effective, of course, but greatness doesn’t happen without a lot of hard work. One basic action in creating greatness must occur over, and over, and over. That’s the simple act of “showing up.” Sometimes, persistently and consistently showing up to do your best work is all that’s required to become really great at your craft.
The greatest example of “showing up” is in our next Practice Development Call. Over the past 25 years, Atticus has hosted free monthly Practice Development Calls supporting the legal community in ways of growing their practices. The next one is our 200th call!
Please join founders Mark Powers and Shawn McNalis as they celebrate the milestone of our 200th Practice Development Call. They will share the 10 biggest insights and strategies for growth that they’ve learned as practice advisors over the last 25 years.
My suggestion: Just show up. It will be great.
Could a temp-to-permanent hiring process keep bad apples from ruining your staff?
March 10, 2015
When you hire someone for a position in a law firm, the interview process is daunting from both sides of the desk. You want to make the perfect hire, and the candidate wants to land the job.
But there are many factors that could make the job/candidate a poor fit. Perhaps the new hire discovers the position isn’t what she thought. Or maybe his personality doesn’t fit with your firm’s culture. It’s a costly error to hire someone and then have to build a case to fire that person.
What if you proposed a trial run in a temp-to-permanent work arrangement?
It’s a trend gaining a foothold with smaller firms and businesses across the country. However, there are several factors to consider before adopting this hiring method, which doesn’t work for every office.
What if the candidate has a job? Assuming the work wouldn’t violate their current firm’s rules, can they take a week off to work with you? Perhaps work nights and weekends on a project?
To make it worth the candidate’s time, they should be paid a reasonable contract fee.
How much time do you invest? Do you need a week, a month or milestone goals to vet the candidate?
A Microsoft Business blog by Joanna L. Krotz, offers this advice on temporary-to-permanent options: If your instincts about the potential hire are strong, give the person the job as a probationary hire. Usually, state law dictates how long these periods may last, but it’s usually 90 days.
In a recent New York Times report, CEO Jon Bischke discussed how well the process works at his 20-person company, Entelo, a recruiting software company in California.
He said more than a dozen people of 30 who agreed to the trial run were hired. For those who didn’t get the job, it was a matter of the fit wasn’t right for the candidate, he said. For others, “Let’s just say that had we hired them, we probably would have had to fire them.”
Could this approach work for you? It takes some planning, but in the long run, it might save your practice from making a bad investment.
For additional guidance, I recommend “Hire Slow, Fire Fast,” a must-read for every practice for assistance in hiring the right members, forging the winning team and managing it effectively. The book provides dozens of forms including applications, tests, surveys and checklists to help you build your dream team.
Four Cornerstones to Creating a Competitive Advantage as a Law Firm
February 18, 2015
Filed under: Uncategorized — admin @ 3:05 pm
Most attorneys want to build a competitive advantage for their practice. However, if you don’t have the ability to master four cornerstones, it won’t happen.
It is similar to being a race car driver: If one of your four tires is flat, you can push the pedal all you want but the car will just spin in circles. A lot of lawyers have four flat tires in their practice.
In my experience, these are the four cornerstones to building a competitive advantage.
- Time Management. Your time management skills might be good, if not great, right now. But as your firm grows, you need to shift things. Your focus changes as your staff increases. You spend more time managing other people, processes and strategies. You are doing a lot less yourself. To make this work, your personal time management skills need to change. What worked at one level of growth, does not work at the next level. You need to constantly improve your time management and personal focus skills.
- Cash Flow and Profitability. Most lawyers under estimate the impact of financial strategies on your practice. For example, learning how to create a pricing context in your services can radically change your practice. Just like time management, your ability to run your practice from a financial perspective will cause quicker growth in your practice.
- A Great Team. Most lawyers are happy if their staff will just show up on time 80 percent of the week. Occasionally, we see lawyers build championship teams in their law firms. Those firms with amazing teams have such a competitive advantage in the market place just because of the way their teams operate. The firm may not need amazing pricing strategies, just great people.
- Marketing. If you have a steady flow of great clients, your confidence and revenues will always rise. If you only market periodically, then you will have inconsistent cash flow. Consistent marketers generate consistent cash flow. If you market consistently and well, your cash flow will be consistent and grow. As you market, or fail to, there goes your cash flow.
If you want to have a competitive advantage, you don’t have to do anything overly innovative. You just need to implement and consistently improve on these four cornerstones.
Webinar: 7 Traps that Stop Attorneys from Growing Revenue
February 5, 2015
Filed under: Uncategorized — admin @ 1:11 am
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One thing that really frustrates me as a coach is seeing otherwise great lawyers step into easily avoidable traps that keep them from growing a practice and revenue.
These traps are right in front of you. They’re pretty big and noisy. And yet, so many attorneys keep walking right into them.
Are you up for a challenge? I hope so.
Next week, I’m co-hosting a free webinar with fellow Atticus Practice Advisor David Phelps.
Our presentation, “7 Traps that Stop Attorneys from Growing Revenue,” will be held Thursday, Feb. 12, at 4pm EST.
One of our goals as coaches is to help attorneys like you avoid these missteps and to motivate you to take up the Atticus 2015 Challenge to Double Your Revenue™.
Avoiding these traps means implementing some very simple – but crucial – strategies for change. We’ll outline these strategies and offer our experience on how to best implement them in your practice through direct action.
For me, the two best things that could happen if you attend this webinar are that you’ll find the information we share valuable to your practice and that you are left excited and enthused about what’s next.
If you attend the webinar and accept our challenge, we’ll offer you a special gift that we’ll announce during the broadcast. It’s a good one, so be sure to attend.
To register, click here.