This simple analysis also demonstrates that if similar gains could be achieved on all the partner’s matters, two alternatives are created that were not previously evident: First, as the return per partner hour increases, the partner could work 365 fewer billable hours and earn the same PPEP under scenario 1 assumptions. Those hours could be directed to other client value activities, such as no-cost, on-site client visits, training and mentoring associates, marketing for new work, etc.
Alternatively, the partner could decide to hold billing rates in the coming year and still earn a considerably higher PPEP. Of course, an in-between option could be a combination of both. This example illustrates the power of benchmarking and conducting what-if scenarios.
If you are uncertain about the profit potential for leverage, consider that last year's Am Law results reported the top 100 firms' average leverage was 3.97 compared to 2.15 for the second 100. An artificial intelligence (AI) key influencer analysis of the top 100 firms found that leverage was the most significant profit metric driving comparative partner profit of the top 100 firms. Leverage is challenging to improve over the short term but must be on the radar for firms that want to obtain a competitive advantage to attract profitable clients and top talent.
Potential Unintended Consequences Evident From Scenario 1
Sharing limited data may encourage poor decisions. Too great a focus on billing rates and margins might encourage responsible partners to delegate to other partners rather than associates to maximize billing rates and lower per-hour costs. Expenses are lower when delegating to partners because partner compensation is not an expense but a distribution of net income, like the Am Law annual survey.
Comprehensive What-If Profit Dashboard
The following section suggests measures, benchmarks, segments and what-if capabilities that a comprehensive profit dashboard should include. The example dashboard provides new insights typically found only in difficult-to-create ad hoc Excel analysis.
Below is an example of a benchmarking dashboard that drills down to practice, responsible partner, client/matter, timekeeper, office, etc. A user can further segment data by clients that exceed or are below firm average PPEP and further segment clients by annual revenue.
If a benchmark result reveals a metric underperforming firm average, a user can move the slider to observe the impact improved performance would have. If improving a low-performing metric is challenging, the user could adjust other metrics to seek the desired outcome.