Counterintuitive Ways to Increase Law Firm Profit in a Recession
January 5, 2023
With the U.S. teetering on the edge of a recession, more and more law firms are looking for ways to protect themselves if the economy worsens or fails to stabilize. There are many ways for a law firm to survive a recession, such as reducing overhead, collecting more accounts receivables, and increasing new business.
However, thinking outside the box and using counterintuitive methods to heighten profit may provide the best strategies. Consider some of these unexpected yet astute avenues to keep your firm strong.
Hire When Others Fire
When large law firms let release their staff when the economy downshifts, small to medium law firms should hire. The increased number of qualified job candidates allows you to grow or add practice areas that present opportunities. If you’re not sure where to invest in growth to withstand economic turmoil, consider hiring contract lawyers from sources such as Law Clerk to dip your toes in some new practice areas and determine if they are profitable.
The Pros & Cons of Hiring form Large Law Firms >
Alternatively, when you use Smokeball’s legal case management platform, you can leverage Firm Insights to understand which areas of law are the most winning and cost-efficient, so you can double down on marketing and accepting certain cases. By shifting your practice management to a cloud-based case management platform that boasts various automated features, you receive reliable analytical guidance in keeping your firm on track. Moreover, when you do hire, Smokeball makes it easy to train and engage new employees with automated workflows that let legal staff collaborate and know what to do and when.
Read More: How to Pivot to Areas of Law Practice That Do Well in a Recession >
Invest in Legal Tech
When facing financial challenges, the obvious way to improve profit is to cut spending. However, investing in legal tech now is one of the savviest ways to boost your bottom line. Taking advantage of legal tech like Smokeball has a wide range of benefits:
- Automated time-tracking captures all work done, wholly and accurately, in the legal case management software, Microsoft Word and Microsoft Outlook, increasing revenue.
- Automated billing ensures every client is accurately and timely billed for all time expended, decreasing accounts receivable.
- The Smokeball integration with LawPay allows clients to pay online quickly.
- Legal tasks and workflow software increases your staff’s productivity by easily assigning and managing tasks and streamlining collaboration.
- Save time on admin tasks so you can focus on billable hours by leveraging an extensive forms library of over 20,000 forms and automating email management, calendaring, and document creation and filling.
- Manage and maintain your entire practice from anywhere (even on mobile) with a secure, cloud-based legal case management platform, remotely accessible by anyone in your firm, removing your reliance on specific people to provide access to files and forms.
- Law firm insights provides actionable data you can use to shift resources to more profitable practice areas and evaluate fee structures.
Investment in legal tech pays your firm back over and over with an additional average of over $130,000 annual revenue per fee earner. Thanks to streamlined workflows, fully captured billable hours and accounts receivable management, your firm recoups its investment over and over.
Curious about how legal technology helps you earn more? Read How Legal Billing Software Boosts Your Profitability>
Improve Office Culture
While cutting costs is vital for your bottom line, this is the time to focus on employee satisfaction. Retaining existing staff who are trained and familiar with your practice is ideal. One way to do this is to allow more employees to work from home, as remote or hybrid work culture improves job satisfaction. This transition is possible with Smokeball’s automated case management and mobile app, which keeps the entire team working together efficiently and in sync.
Five Ways Legal Software Helps you Hire and Retain a Great Team >
Another component of law firm culture is investing in employees. Troy G. Rosasco, Esq. of Hansen & Rosasco, LLP in New York City, says:
“You add value to your firm and to your clients by properly training your employees and giving them the tools to use their knowledge and expertise. In today’s age of immediate gratification, a lawyer cannot respond to every inquiry. But often, a well-trained staff member can. By investing in your employees, your clients will be better served legally, better-taken care of, and everyone involved will benefit.”
As mentioned previously, it might behoove you to hire contract services to help alleviate some of the burdens on your full-time legal staff, so they feel supported.
Improve Client Experience
Focusing on client retention improves your financial outcomes. Evaluate current client and new client experiences and take steps to improve them. You could begin with their in-office experience by asking questions like:
- Is your furniture comfortable?
- Is your receptionist welcoming?
- Do you have small touches that make clients feel welcome?
Ideally, these questions also extend to how you communicate with your clients or assist them through the onboarding process. This audit helps you consider the technology you have in place to provide five-star service. Even as cases progress, look for ways to promote client satisfaction, such as the speed of return calls, employees’ email and phone demeanor, and whether you have an accessible client portal.
Smokeball helps you manage your leads so you stay in contact with prospective clients and improve your conversion rate. Follow-up calls and emails are easy to schedule and never slip through the cracks when you have end-to-end case management software with solid integrations that allow you do your best work from one place.
Five Ways Legal Software Boosts Your Client Relationships >
Have we lost our minds? No, this is an excellent time to evaluate which are your least profitable clients using Smokeball’s law firm insights dashboard and reduce or eliminate them. Face this problem head-on. Every firm has clients that don’t pay or practice in areas of law that are not profitable. Whenever possible, withdraw from those cases and start being more selective with your clientele. In the instance a withdrawal is denied, offer the client a time-limited offer to pay 50% of their bill and have the entire balance wiped clean. Then, redirect your practice towards higher profit matters and clients who pay reliably.
Be Selective About New Clients
Nick Oberheiden, Lead Attorney at Oberheiden P.C. in Houston, Texas, suggests thinking critically about new clients.
“Don’t let fear govern how you handle new clients. During a recession, taking any work that shows up can be tempting. If a prospective client doesn’t fit into your overall vision, it will bog you down and drag your growth. Don’t lose sight of what kind of firm you want to be.”
Instead, as we explored above, being selective protects your firm against clients and cases that become a financial burden to your firm. When you have the data about who those clients are and which cases or areas of law present an economic threat to your firm, you can be confident in saying, “No.”
When facing financial adversity, many firms think in the short term: “Let’s just get through these next several months.” This outlook leads to questions about how to cut costs, where to find quick revenue, and how to balance the quarterly books. Conversely, the wiser strategy is to turn your focus to the long term and take actions that will provide reliable ongoing profits well into the future. These action steps include expanding your practice areas, hiring experienced staff (full-time or contract), and using legal technology to improve your firm’s efficiency, profitability and culture by taking a data-driven, analytical approach to your business.
Don’t Lower Your Legal Fees and Rates
Lowering your hourly or flat-fee rate might seem like a quick way to bring more clients in the door and become more competitive, but it backfires in the long run. Not only do you decrease your profits, but you position yourself as a less-skilled practitioner to those charging according to the value of their time. Maintain your legal fees as an indication of your experience and competence. However, during economic turmoil, consider holding rate increases.
Why Time-Keeping Software is Valuable for Fixed Fee Law Firms >
Increase Data-Driven Marketing
Marketing is often the first place firms cut spending, but increasing your marketing is the best way to increase revenue. The key is to market leveraging data.
Evaluate where your best clients come from and maintain those lead magnets. If you have a billboard that works, keep it. If you belong to a community organization that results in clients, continue paying those dues. If social media brings people in, continue to post and network.
Additionally, consider increasing your marketing spend in those channels, thereby increasing the flow of clients from these sources. For example, place a second billboard in another area of town, add a prime airtime spot on the radio ad, expand to a new social media platform, boost your posts with paid ads, or dedicate more time to community involvement. Smokeball’s Firm Insights will help you identify the most lucrative channels.
Watch On-Demand: How to Market Your Law Firm Ethically and Effectively >
Change Legal Fee Structures
Offering a flat fee can match or exceed your current average billing and provide an attractive billing option for clients. While you should not lower your hourly rate, you should evaluate whether flat fee billing nets you the same (or higher) profit. Start by assessing your profit in various practice areas with Smokeball law firm insights and calculating your average billing for multiple matters.
John Joy, Managing Attorney at FTI Law in New York City, reinforces that evaluating your cash flow structure is crucial and suggests:
“For regular clients, you could consider offering them a fixed fee arrangement for the next year. When a recession is looming, the certainty of a fixed fee arrangement could be attractive to clients and result in you getting a healthy balance sheet.”
While holding your value, providing billing and payment options helps to retain current and attract new clients who might otherwise postpone hiring an attorney.
For example, Matthew Kerbis, at Subscription Attorney LLC, a virtual firm, now works entirely on a subscription basis.
“This model allows you to offer lower prices and still bring in business. Adopting a subscription model and abandoning the billable hour will allow your firm to reduce the time it’s spending per client matter, allowing you to take on more clients to scale your business and earn more revenue than with the billable hour.”
Reach out to your network of attorneys to see who has successfully transitioned to a new business model, assess the process by which they made changes, and analyze if this could also benefit your firm.
Your firm must innovate to find and improve revenue to succeed in a recession. Smokeball is your partner to help you run your best firm and build your best life.
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