Identifying the Gaps in Law Firm Revenue

by rocketmatter-admin June 12, 2015

It happens month after month. You set a goal to reach your firm’s revenue capacity and you get the same results. You’re underperforming.

Changes need to be made and there are obstacles you must overcome. But how do you identify what’s keeping the firm from reaching its revenue capacity? And how do you make improvements to meet or even exceed those goals?

According to a report by Georgetown University’s Law Center and Peer Monitor, “2014 Report on the State of the Legal Market,” law firms are only reaching 84 percent of their maximum revenue.


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How can you reverse this trend? Here are two important elements you should examine.

Efficiency of law firm staff
The revenue capacity of a law firm represents the amount of money that a firm should bring in based on the billable hours worked by attorneys and staff working at their highest and most efficient level.

So let’s use the Doe Law Firm as an example. John, a solo attorney, works 220 hours a month with a hourly rate of $200 while his paralegal, Jane, works 160 hours a month with a hourly rate of $80. Combined they bring the firm’s monthly revenue capacity to $56,800.

Based on the Georgetown University Law Center and Peer Monitor report, the Doe Law Firm is likely to bring in $47,712. That’s almost $10,000 less than the firm should be earning every month.

This means that both John and Jane need to be more productive during their hours in the office. In many firms, increasing productivity can add billable hours without having to add more hours in a workday. Little improvements can be made by simply transferring a hour a day per employee from non-billable time to billable time and increase those hours over time to make notable increases to your firm’s revenue.


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Activity Fee Type
In recent years, firms have gravitated toward setting custom expense rates for activities such as filings and research. This practice reduces the amount firms get paid for work that was actually done.

When entering research as expenses instead of timed entries, firms are not able to properly reflect the exact time that was spent conducting research. This is where the problem is created. Yes, it took two hours for Case A’s research to be accomplished but the time spent to research Case B may be double that of Case A.

In the example above, there’s two hours of unpaid work completed for Case B because there was a custom expense rate put in place for research based on the results of Case A. No two cases are the same. There are many variables that define and comprise a case.

You now have two options. Continue charging a custom expense rate or start tracking time by utilizing hourly billing. Your best option is to bill hourly. This eliminates the need of restricting research to a set amount and losing out on revenue.

Every law firm aims to increase their revenue and profitability. But many fail to realize that raising rates and increasing the hours billed will not get the job done. If you want to reach your firm’s revenue capacity, you must realize that productivity drives profitability.

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