Want to Improve Your Firm's Performance? Learn to Count Calories

Vol. 2, No. 2

Loretta Ruppert is a Senior Director with LexisNexis Law Firm Practice Management. Loretta brings experience as a previous business owner and legal technology consultant, manager of professional services for a CPA firm, subject matter expert for developing back office software, an accountant and probably most relevant, as a former law firm employee and user of law firm practice management and financial systems.

 

 

When it comes to improving the financial performance of your law firm, the last source of inspiration most attorneys would look to is an app that helps them watch what they eat.

But according to the results of two new LexisNexis surveys, the concept behind calorie counting has a lot more in common with running a successful firm than one might think.

Consider this: studies have shown that people on diets who keep track of their calories have much higher success rates than those who simply say they plan on “eating better.” The mere action of calorie mindfulness makes you think before you eat, helps you measure against a goal, provides you with valid information to adjust your eating habits, and holds you accountable for your choices.

But let’s be honest. It’s not really fun.

Similar to the chore of tracking your meals, attorneys have long had a love-hate relationship with their own version of the calorie: the billable hour. The billable hour is a means for law firm revenue and performance, but, like counting calories, it comes with the unpopular task of tracking and recording.

With a calorie counter app, you won’t be successful only recording the good foods you eat. You have to record everything you eat. Likewise, too many legal professionals—especially in solo and small firms—choose not to record the time they don’t bill, claiming they don’t really know where nonbillable time is spent.

This can be dangerous.                                         

Think about going through one of the popular wholesale stores on a weekend: turn any corner and you might be greeted with tasty samples. A little bite here and a little bite there . . . what harm can it do to your goal? On a recent shopping trip, I took the time to add up the calories of all those samples. The total? Almost 1,500.

Lawyers who track how they spend their nonbillable time can take actionable steps toward more effective time usage—which can lead to higher profits without any additional work. Tracking can change the behavior and help stakeholders make better decisions on where they spend their time. Like counting calories, tracking hours worked can help firms improve performance via increased revenue, more efficiency, and better use of firm resources.

 

The Gap Between Hours Worked Vs. Hours Billed

We all have hunches on where attorneys spend nonbillable time, but we were curious to find out more.

In May 2012, LexisNexis launched the Law Firm Billable Hours Survey to identify the gap between lawyer hours worked versus hours billed to clients. The survey attracted 499 responses from attorneys in every state except Maine.

A follow-up survey conducted in July gathered responses from more than 1,000 respondents who helped us identify and measure time spent on activities other than billable client work.

 

Respondents by Law Firm Size or Segment

 

The LexisNexis® Law Firm Billable Hours survey gathered data primarily on small and midsize law firms. Firms with three to five attorneys accounted for 131 respondents, more than any other law firm segment.

The biggest news from the survey? Attorneys reported working an average of nine hours per day—but only billing for six. That’s a 33 percent gap in hours worked vs. billed, larger than we expected.

As you’ll read below, we also found some interesting nuggets of information about how those averages differed by size of law firm, geographic location, and area of practice.

 

How Do Small Firms Stack Up Against the Big Boys?

It’s probably no surprise that attorneys at smaller firms had the biggest gaps between hours worked versus billed when compared to lawyers at larger firms—nearly 40 percent—which is the largest such gap among all segments surveyed.

It’s safe to assume that attorneys at these firms wear a lot of hats, and have to spend more of their own time on nonbillable tasks, like administrative and business development functions, as compared to their colleagues at the larger firms.

But the plot thickens when you dig further into the numbers.

 

 

Nearly one fourth (23 percent) of the 71 solo firm respondents fell into the bottom 25 percent in terms of billing efficiency. The optimists among you might point out that the above statistic suggests more than three quarters (77 percent) of solo firms do not fall into this unfortunate category—and you would be absolutely correct.

Later on, we’ll share how the highest billing solo and two-attorney firms spend their nonbillable time, and examine the areas of practice represented to see what other lessons we can learn from their example.

Law firms with 11–20 attorneys were more effective at billing the hours they work than any other law firm segment—including larger firms with 20 or more attorneys.

  • On average this segment works 1.1 hours more per day, billing an additional 22 percent more time than the solo and two attorney firms
  • This segment worked 1/10th of an hour more than the 20+ attorney segment and billed on average 1.8 hours more per day or 19 percent more time than the 20+ attorney segment.
  • However, even with an 8 percent gap between hours worked and billed, that is equivalent to ½ day per week or up to 24 days a year of unbillable time (this assumes 2 weeks of vacation, 1 week of sick leave and 1 week for CLE per annum).

 

Where Does Your State Rank in Billing Efficiency?

The gap between the highest- and lowest-performing states was more than 50 percent, and that alone should cause considerable concern.

The winner? Delaware, where lawyers report that on average, 92 percent of their working hours are spent on billable client work. At the bottom of the billing heap were Oregon respondents, who bill clients for slightly more than 41 percent of total hours spent at work.

 

 

But Where Are All the “Lost” Hours Going?

While the initial billable hour survey did provide some useful data, it also raised a number of important questions, such as:

  • How are attorneys spending work hours that are not billed to clients?
  • Do certain practice areas lend themselves to higher utilization and/or more effective client billing practices?

To answer these questions and more, we conducted a follow-up survey in July 2012.

As noted earlier, the LexisNexis Non-Billable Hours survey had more than 1,000 respondents. We collected basic demographic information including location, size of firm, as well as primary and secondary areas of practice. We also asked respondents to provide an accounting of how their non-billable hours were spent.

To get a better understanding of nonbillable activities, we asked participants to rank order how they spend their nonbillable time into the following categories:

(1) Networking, marketing, client development

(2) Free consultations to win new clients

(3) Writing off or writing down time in order to build, strengthen or retain clients

(4) Administrative or practice management tasks, that is, document management, filing, docketing, billing, and accounting

(5) Other. About 60 percent of the participants provided us additional ways they spend their nonbillable time, which we categorized for ease of reporting.

(Note to editor: The full results from the non-billable hour survey will be available for download from the LexisNexis Law Firm Practice Management web site at the time this article is published.)

This time we received answers from attorneys in all 50 states, with a fair distribution of law firms with 1–20 attorneys.

 

Percentage of Participants by Size of Firm

 

 

The Biggest Culprit for Nonbillable Hours

It might come as no surprise that more than 50 percent of the respondents ranked administrative or practice management tasks (i.e., document management, filing, docketing, billing, accounting) as the #1 or #2 activity eating up the majority of nonbillable work hours.

 

 

The top five areas of practice that ranked administrative or practice management tasks as the biggest drag on their ability to bill their time were:

  1. Litigation: 25 percent
  2. Real Estate: 16 percent
  3. Family Law: 8.5 percent
  4. General Practice: 8.5 percent
  5. Other: 7 percent (nonprofit, health care, municipal, special needs, eminent domain, banking law, etc.)

 

The Least Impactful Task Contributing to Nonbillable Hours

Only about 26 percent of the respondents ranked time spent on “Free Consultations to Win New Clients” as the activity with the lowest impact on hours billed.

 

 

 

Other Nonbillable Activities

Interestingly, nearly half (40 percent) of respondents indicated that time spent on “Networking and Client Development” did not have a significant negative impact on hours spent on billable client work.

Similarly, roughly 50 percent ranked “Writing Off or Writing Down Time in Order to Build, Strengthen or Retain Clients” as having only a minimal impact on total hours billed.

About 60 percent of the survey participants selected “other” to categorize where they spend nonbillable time. Keep in mind that they ranked these nonbillable activities 1–5, one being the least impactful and 5 being the most impactful to billing their time. In further peeling back the details of the responses, we found some of the participants could have classified in one of the existing selections.

However, it was interesting that 15 percent of the total survey participants claimed that they spend a good portion of their nonbillable hours managing or mentoring staff and attorneys and general management of the firm to include email management and office meetings. Another 18 percent of the survey participants, or one out of every 5.5 people, spent a large amount of time on personal development, CLE and volunteer work.

Roughly 10 percent of survey respondents claimed they were unable to accurately account for all their time as a result of their chaotic schedules (e.g., travel to and from court) coupled with a variety of personal distractions. However, it is not all bad news we have to report.

The number one item that prevented attorneys from billing under the “Other” category was general firm management related to being a managing partner for the firm, not necessarily administrative tasks, (i.e. billing or accounting) but the time it takes to run the firm.

 

How to Maximize Your Billable Time

Like calorie counting and losing weight, there are no shortcuts to cracking the nut of the billable hour. The one key takeaway from these survey findings is this: you need to track all of your time.

But it’s doesn’t have to be difficult. Excellent, affordable software is available to help firms of all sizes capture, classify and record hours worked, so there’s no excuse for using legal pads, napkins or other analog methods.

Keeping a more accurate record of how you and your staff are actually spending your time will help prevent billable hours from being “lost,” and will enable you to make more informed decisions about how you and your staff allocate time to practice management, business development and other critical—though nonbillable—tasks.

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