If you haven’t made a business plan for 2016, it’s not too late to develop one. Successful businesses take the time to look back at their accomplishments and challenges they faced during the previous period and then create a plan to maximize their strengths and minimize problems going forward. These include: improving revenue; controlling costs; keeping current clients; obtaining new work; and retaining their top talent. Law firm leaders should and must be leading this process. The plan should have a strategy for the short-term (3-6 months) and long-term (12-36 months). It is imperative that the plan be communicated to the rest of the firm to ensure they are doing their part to achieve the firm’s goals. The following areas should be included in your firm’s strategic objectives:
Revenue. A large component of a strategic initiative is to plan on increasing revenue each year. A plan should include the following components:
- Effective pricing is absolutely necessary to ensure enhanced revenue. If you don’t have a process for establishing billing rates, AFAs, discounts, write-offs, etc. establish one now. In 2016, non-hourly pricing will be a larger percentage of revenue and will have a dramatic effect on your profitability.
- In addition to managing the “sticker rate” or standard billing rates, firms must manage the actual rates billed and collected, otherwise known as the effective rate or realization rate. Clients want and expect discounts, most favored clients rates, pay slowly, etc. These have an impact on revenue, profitability, and cash flow. They must be controlled by the law firm and not the client. Again, if there is no process in place, establish one now.
- Establish partner and practice area goals and expectations. Meet at least quarterly to monitor actual vs expected results. Hold partners accountable. Peter Drucker said “you can’t manage what you don’t measure. “ It is also true that accomplishments occur from setting clear and attainable goals.
Costs. Expenses have a tendency to grow and expand if not continually managed and controlled. Fixed costs such as rent, once established, do not need attention. However, the following expenses, if not watched, will negatively affect your profitability:
- Staffing will grow if left unchecked. Most managers want to add more personnel as they believe additional resources solves problems. Develop a process requiring your managers to draft business cases for incremental hires. This will help everyone understand if the resources are necessary and helps to develop and nurture organizational excellence and efficiencies.
- Technology is a necessary cost of doing business. Requests for expenditures in this area can quickly get out of hand. The head of technology needs to understand your business needs and the delivery of legal services to your clients. Technology expenses need to create efficiencies in both areas and not just lead to additional staffing requests and complex technological advances that do not help clients, attorneys, or organizational effectiveness. A technology plan should be part of the firm’s overall strategic plan.
- Fixed expenses like rent are a large part of a law firm’s cost structure. Ensure that committing to long-term fixed expenses align with short-term and long-term goals and objectives. Many firms have adversely affected profitability by agreeing to expenses that do not align with their strategic plan.
Marketing. Law firms have to market today to create a continuing flow of work. Your marketing program has to identify opportunities and ensure your firm’s messaging is consistent both externally and internally. Also, your marketing efforts need to be a part of your strategic vision and plan. The following recommendations will assist in improving your marketing success rate:
- If you do not have one, develop a firm-wide marketing plan. The plan should be part of the firm’s strategic vision. The marketing plan will also provide direction to the marketing team. Without one, the team will lack direction and will react to the largest practice groups and loudest practice leaders. It will be impossible to evaluate the marketing efforts and expenditures.
- In addition to a firm-wide marketing plan, each practice area should establish goals and objectives including business development activities for existing clients and efforts to acquire new business. These efforts must be measured and evaluated and the partners in the group have to be held accountable for the execution of the plan.
- Use data and metrics to improve marketing and business development, especially cross-selling. Many Managing Partners tell us cross-selling is not possible. Most of the time it relates to partners not feeling rewarded for their efforts. Metrics play an important role in the management of the firm and the compensation process. They can also inhibit behavior if partners don’t feel their efforts, whether successful or not, are recognized. Partners need to understand expectations and be held accountable for their actions.