There is nothing more heartbreaking than working extremely hard the entire month, only to realize there is little to no money in the bank account and wondering where did all went.
Law firm owners work way too hard in order to not enjoy reliable profits from their business. That is why this article will center around a 3-step formula to boost your law firm’s profitability.
Sales Do Not Equal Profits
One of the most common mistakes beginner law firm owners make is equating sales to profits. It is simple to chase one client after another without considering that revenue is not the same as profits.
In simple words “revenue is what you make, profit is what you keep.” Recognizing this, you will see that what most lawyers are looking for when they think “I want to make more money” is profits, not revenue. Because profits are what pays for your vacations, your kids’ school, and your growth plans; not revenue.
How to Boost Your Profits: A 3-Step Formula
Now that we have established that it is profits that most law firm owners want, it’s time to set a proven formula to increase them. Melissa Houston, a Forbes contributor and CPA with over 20 years of experience, explains this as a 3-step formula.
(Pricing x Sales) – Expenses = Profits
It’s simple when you think about it. Your pricing times your sales volume, minus your expenses, equals your profits. Here’s an example:
($300 per billable hour x 60 billable hours per month) = $18,000 in revenue
$3,000 in office rent + $5,000 in staff + $1,500 in tech + $500 miscellaneous = $10,000 in expenses
$18,000 in revenue – $10,000 in expenses = $8,000 in profits
When you consider that the number above ($8,000) is pre-tax, you realize how important it is to keep healthy margins in order to generate sufficient profits from your law firm. Here are 3 non-exclusive ways to improve profitability:
1. Increase Prices
Most law firms never do a price audit to see if there’s room to increase prices. And if they do, it is based on a “gut check” instead of objective data from the market.
The reality is that, with high inflation, raising prices is a reality that needs to happen every year. The key to doing it while retaining clients is to always provide value that exceeds your prices and to think about the relationship between pricing and volume.
Do you want a low-volume, high-touch law firm that only works with a handful of affluent clients? Or are you willing to lower prices, but serve more clients? Both models are viable, and each law firm needs to find the spot in between that makes the most sense to them.
2. Increase Sales Volume
Once you test higher prices and find a spot where you can be profitable while also remaining competitive, it is time to increase sales. We can do this by engaging in activities that generate new business, such as networking, strategic partnerships, advertising, and touching base with past clients.
The key is focusing on one strategy until you see significant results. For example, instead of trying to post content on every platform, you can double down on LinkedIn. Amata’s virtual assistants can save time by creating & scheduling your content, updating your CRM, and processing new client intake forms.
3. Control Expenses
This is probably the hardest part for growth-focused founders, but you need to control expenses. Actually, lowering expenses is probably the fastest way to increase profit margins and generate more “cash-in-hand” from your law firms.
Yet, we understand the struggle. Running a law firm is expensive, nevermind growing it. It takes a lot of financial, energetic, and human resources to take your law firm to the next level, and that is why we have created a unique solution for lawyers.
If you want to keep growing your law firm and invest in team members, assistants, premium offices, and tech, but you still want to watch your expenses and protect your profitability, our Fractional Support Services are for you.
With them, you can hire virtual and on-site assistants plus part-time paralegals all working only the hours that you require. This “pay-as-you-need-it” model allows you to invest in top-tier talent, delegate day-to-day operations, and focus on billable hours, all without breaking the bank. It is a solution that accommodates to the reality of your cash flow and growth needs, and that provides flexibility to scale on your own timeline and terms.
Interested in learning more? Set a time to speak with our team and we will explain how our Fractional Support Services plus Scalable Office plans can get you the resources that you need to grow while protecting your law firm’s profitability.