Plug Those Revenue Leaks!

Vol. 28 No. 3

By

David Leffler is a member of the New York City law firm Leffler Marcus & McCaffrey LLC, which represents clients in business matters and litigation. Prior to that he was a solo attorney for more than a dozen years.

 

Despite what you might hear about lawyers at top-grossing law firms being paid millions of dollars, many lawyers who run a solo or small law practice struggle to make a good living. They are not good business people, they lack the self-confidence to get paid what they deserve, or they simply have hit hard economic times.

Plenty of posts on the ABA online discussion group SoloSez confirm this, as do my conversations with lawyers over the years.

In this column I will identify revenue “leaks” of which you may be unaware, leaks that lead you to charge less than you think you are charging for your services, and I’ll share some tips on how to plug those leaks, resulting in a significant increase in your law practice revenue.

 

Under, Over, or Just Right?

First, you have to know where your billing rate falls. As in Goldilocks and the Three Bears, is it too high, too low, or just right? “Just right” would be the current market rate, which you determine by finding out what other lawyers charge for comparable services in your area. Most of you probably know what the numbers are, but if you don’t, just ask other solo lawyers in your town or city.

Once you establish whether or not you are charging a market rate, you should make market adjustments to your rates accordingly. Then read below to see if you are truly earning those rates or if any of the revenue leaks apply to your practice—and what you should do about them.

 

Finding the Leaks

Don’t think that just because you charge the market rate that you are getting paid the market rate. Here are some of the major “leaks” that might be undermining the financial health of your law practice:

  1. Spending “non-billable” time on matters for such things as secretarial work.
  2. Spending time on general administrative work that should be allocated to an assistant.
  3. Cutting the hours in your invoice because you believe you are charging too much.
  4. Lowballing flat-fee rates.
  5. Putting yourself in a position where you might not get paid.

I know that those lawyers who are guilty of these practices have perfectly reasonable explanations for these behaviors. Let’s take a look at these, starting with the most common excuse for leaks 1 and 2:

“I can’t afford an assistant, so I have to do everything myself—and besides, I like being self-reliant.” This may surprise you, but whether or not a lawyer in solo practice has an assistant is rarely a matter of finances; it is most often owing to the lawyer’s personal habits and beliefs about “self-reliance.” You might think you can’t afford an assistant, but having one would free up more time for marketing, and the resulting legal work would in all probability more than pay the assistant’s salary. Burdening yourself with administrative work that you could easily delegate is like trying to run a marathon carrying a 25-pound weight.

Have you ever met a lawyer who always handed things to other people to do, so that it seems like the lawyer wouldn’t even sharpen his or her own pencil? You might be critical of this, but it is a good attitude to have if you want to maximize your time at work. If your desire to be self-reliant makes you do things like change the toner cartridge in your printer, not only are you interrupting the flow of your legal work but you also may find yourself dealing with a problem that crops up with your printer when installing the cartridge, and other people in an office suite situation might start asking you to change their printer cartridges because “you are so good at it.”

That’s a really bad allocation of your time if you want to be a success in your solo practice. Each time you do something at work that is not billable, ask yourself, “Do I really need to be doing this, or can I delegate it to someone else?”

You should even delegate tasks that take more time to delegate than to do yourself. Why? Because it will reinforce the behavioral pattern of delegating and help you avoid sliding back to doing non-billable work yourself. Also, these tasks might take some time to delegate the first time, but eventually you might have to spend very little or no time delegating them because your assistant will become trained to do them.

Hiring an assistant, especially in this age of virtual assistants, is a no-brainer.

“My clients will never pay for all of the time I spent on their matter.” Leaks 3 and 4 above describe behavior that can be a result of two things. First, inefficiencies in lawyers’ practices often lead them to charge too much for their services. Second, if lawyers believe they are charging more than a client will pay, notwithstanding that they worked efficiently on the matter, they will always be cutting their bill.

Instead, always be considering how to deliver services more efficiently so you always give good value for your client’s money. Tools such as document assembly programs and up-to-date equipment with features introduced in the last couple of years—not way back when the latest Internet billionaire was born—can greatly increase your efficiency; these tools take the struggle out of delivering services with a reasonable price tag.

In my experience there is a disproportionate number of solo lawyers who walk around believing that clients will always challenge legal fees no matter what the amount. This results in a lot of a lawyer’s time not being paid for, which significantly reduces a lawyer’s income from his or her practice.

There really are clients out there who behave responsibly in their financial relationship with their lawyer. They pay on time and rarely complain about a bill—they believe they are getting value for their money.

If your response is, “Yeah, sure,” then you need to make a serious mental adjustment, because as long as you maintain your cynical outlook on collections in your law practice, you will have lower expectations and more problems with collections than if you did believe that financially responsible clients exist.

Raise your expectations by billing the hours that you worked at the market rates in your community. Don’t hesitate to explain why your bill is appropriate if questioned.

Raising your expectations will change your behavior and generate some bad experiences with both existing clients and potential clients. The existing clients will try to push you back into the “old you” that they know and love. Don’t do it. Risk their wrath and assertions that you are no longer “friends.” After all, friends don’t ask friends to earn less than they deserve.

The good news: Raising your expectations will make you more likely to find those clients that have a healthy financial relationship with their lawyers. Sifting out the difficult clients will leave the better clients for you to represent—and free up your time to truly represent them. Nothing consumes more of your time than difficult clients.

“If I ask for money up front, they’ll never hire me.” This belief, of course, applies to leak number 5. You get a new client and you don’t ask for a retainer up front, or you ask for a very low retainer because you are afraid the client won’t hire you if you ask for the appropriate amount.

Asking for an appropriate retainer up front is actually a good way to clear out clients that will give you trouble paying later. Asking for no retainer up front is asking for trouble. So having a potential client walk when you ask for a retainer could be the best thing to happen—by sticking to your guns, you may well have avoided doing work for no pay.

A similar situation is where a large amount is owed by an existing client. This may have happened because you failed to bill often enough or because, even though you did bill on a regular basis, the client has fallen behind on payments.

As the amount a client owes you grows, there is a shift in power from you to the client. When a client owes you a small amount, it is much easier to give the ultimatum, “Pay me my outstanding bill before I do any further work.” The worst that happens in this situation is that the client doesn’t pay you and you lose the client, but you are only out a small amount of money. When a client owes you a lot of money, it is harder to issue an ultimatum because there is much more at stake for you. So don’t put yourself in that position—train your clients earlier to pay you on time.

 

Looking Good, Feeling Good

Follow the advice in this column to plug up the leaks in your law practice. This way you will be doing less bailing out from a leaky ship and more sitting back to enjoy the sunset.   

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