According to data from Thomson Reuters Peer Monitor, it appears that 2020 profits per equity partner will finish up in the neighborhood of 12% to 15% for many midsize and large law firms. An impressive number, even in the best of times. But especially so considering the environment they were given to work in for the majority of the year.
When law firms were first forced to respond to the COVID-19 pandemic and the resulting stay-at-home orders issued by local and national governments around the world, their focus was primarily on logistics and simply how to keep operations going in a remote environment. Indeed, it is a challenge with which many continue to struggle today.
Once they figured out how to keep their business connected, the next issue faced by many of them was how to keep the business profitable. With demand for legal services down in nearly every practice area, firms had to maximize the profit margins in every matter they accepted. With their clients dealing with the same economic reality as they were, an attempt to raise rates wasn’t going to work.
So, how were they able to do it? How were firms able to achieve those impressive profits in such a challenging market?
Closely monitoring the firm’s finances and making dynamic adjustments: The key to law firm success during challenging times
For many firms, the survival of the business came down to strategic cost-cutting, budgeting, and an investment plan. Profitable firms closely monitored their expenses, maintained strict adherence to client budgets, and took steps to improve client collections. While some of the cost-cutting measures came naturally in a remote environment—outside services (down 3.2%), office expenses (down 22.5%), and recruiting (down 40%), among others—it was on the investment side where some firms found the greatest benefit. This was especially true with their investments in legal tech.
Streamlining law firm business operations with the right legal tech
When most people think of legal tech, the first things to come to mind are focused on legal research, e-discovery, and related concerns. Of equal importance, however, is running a streamlined and efficient back-office that can respond to client and business needs to ensure that every matter is geared for maximum profitability. In today’s environment, that comes down to two things:
- A robust practice and financial management solution: Having a solution that allows law firm financial teams to keep track of time and billing, budgets, and other important information is key. At the same time, it must give stakeholders across the firm access to the most up-to-date information about the status of their matters, tasks, and deadlines. Accommodating the needs of contributors at all levels allows everyone involved to do their part to ensure that the work is performed in the most profitable manner possible.
- Investment in the cloud: Especially in today’s environment, making sure that people across the firm have access to job-critical tools from anywhere is absolutely essential. And, given the sensitivity of the information law firms handle, the security provided by the cloud is a welcome benefit. In addition, many firms have found the support behind the cloud to be almost seamless compared to their experiences with some on-premises solutions.
Is your firm doing all it can to maximize profitability?
In a legal market that remains tentative and continues to show decreased demand, firms must be proactive in maximizing profitability in every aspect of the business. Cost-cutting will only take you so far, and it’s time to exercise every other option at your firm’s disposal in order to give it the best chance of remaining profitable.