Addressing Your Firm’s Revenue Potential

Kathy Fortin

February 15, 2020

 

Addressing Your Firm’s Revenue Potential

Every firm owner and leader no doubt asks the question: Is there an opportunity to improve revenue? Particularly in small firms, a more relaxed culture can result in lower than achievable revenue. How can you address improving revenue, given your present staff, existing workload, while maintaining the firm’s culture?  

It requires undertaking some concrete analysis. Whether your firm consists of five workers or fifty, the analysis is the same.  These simple steps can provide the necessary information:

  1. Create a list of every member of the firm who contributes to revenue.
  2. Add to the list the standard billable rate (or average) of each lawyer and paralegal. 
  3. Determine the number of annual billable hours (not actual) that you would anticipate from each lawyer and paralegal.
  4. Multiply each hourly rate by the number of hours for each lawyer and paralegal. The total will be the anticipated “revenue capacity” for that individual.
  5. Add the total of all individuals to arrive at the firm’s “revenue capacity.”

Next, compare this potential number you have developed to the actual revenue number from your 2019-year end results. Most likely, the numbers do not match. But, is your actual number 80% of the potential number? 50%? The difference between your firm’s potential and the actual revenue is a critical piece of information because you are then able to assess the factors that are keeping the firm from achieving higher revenue.

  • What are the factors that could be obstacles to reaching a fuller potential?
  • Is there sufficient client work?
  • Are billable rates at the right levels?
  • Are expected billable hours sufficient?
  • Is staffing appropriate?
  • Are timekeeping and billing practices efficient?
  • Are collections a problem?

There can be many reasons that a firm falls short of its revenue potential.  Once you identify the specific issues, you can then assess how to correct them. Whatever measures you decide to take require a thoughtful approach. When communicating new ideas, goals, and expectations to the lawyers, paralegals, and other members of your firm, clear messaging is necessary so that everyone understands why it matters; to you, the success of the firm, and how everyone will benefit when the firm does better.