Profit leaks: The hidden costs firms need to plug – find out more with Advanced
Law firms are no strangers to the exact nature between hours billed and services rendered. Every minute, every detail, and every client interaction add up, and it’s important that both sides match in order to maximise profit and offer transparency and value for clients.
Profits are the lifeblood of any law firm, and profit leaks can seriously undermine the financial health of any firm. Let’s shine a light on the significant sources of potential loss within your law firm’s economic framework – missing time entries, inaccurate timekeeping, and the worry of fee discounts.
Missing time entries
Picture this: a day packed with client meetings, court sessions, and case research. Amidst the bustle, it’s all too easy for billable minutes to slip through the cracks. For law firms, missing time entries can be a silent yet substantial profit drain with 37% of legal professionals we surveyed stating missing time entries was their biggest form of profit leak.
Even an hour a day, unbilled at an average rate of £180 (for a UK solicitor of 4-8 years’ experience outside of London), equates to a weekly loss of £900, or an astounding £46,800 per year; consider the potential revenue if this hour was billed at an average rate. The cost of inconsistency becomes painfully clear.
With that in mind, strugglers for time management and time recording should strongly consider streamlining their time-tracking methodology. Move away from manual entry systems, which are prone to error and delays, in favour of digital solutions that capture billable hours seamlessly. Implement automated systems and regular time capture check-ins throughout the day. This may seem like micro-management but think of it as damage control. By making it a habit, you minimise the risk of lost billable hours.
Another proactive step is to encourage time recording ‘as they happen.’ The post-event catchups can be time consuming and are often less accurate than after the fact entries. Train your team on the value of immediacy when it comes to recording billable activities.
Inaccurate time entries
We’ve discussed losing time entries, but when captured, they must always be correct. If a client is overcharged, undercharged, or the bill simply doesn’t correlate with the actual work performed, it can erode trust and lead to diminished profitability. Despite this, our survey found an additional 23% say inaccurate time entries is their biggest form of profit leak.
The immediate impact may be an invoice shortfall, but the ripple effect includes client disputes, loss of referral business, and the perhaps most insidious cost – increased administrative effort to rectify billing errors.
A solution to this would be adopting software that not only captures time but also aids in categorising and allocating it to specific matters. By integrating legal time capture software with case files, you make it more difficult for discrepancies to slip through the cracks.
Regular training and periodic audits are indispensable. Review the billing practices with your team and emphasise the importance of accuracy. These refresher courses are not just for rookies; they should be an ongoing part of every legal professional’s development.
Fee discounts
Discounts are not freebies; they are a negotiation tool that firms use to secure business. But when offered too easily, they can devalue services and erode profit margins. A quarter of our legal sector trends report respondents have told us that fee discounts makes up their biggest form of profit leak.
It’s crucial to understand that clients are more likely to request discounts when they feel they’re not getting value for their money. This doesn’t necessarily mean they’re dissatisfied with your legal expertise. Rather, it’s often about the overall service experience. To mitigate this, focus on providing a service that leaves your clients feeling fully satisfied with their investment.
Start by being transparent about your fees from the onset. Clear communication about what clients are paying for helps them see the value in your services. Next, ensure that you’re delivering consistent and high-quality service. This includes prompt responses, regular updates, and going the extra mile to make the client’s journey as smooth as possible. Remember, it’s the small details that often make the biggest difference.
By adopting this approach, you’re not only reinforcing the value of your services but also fostering a stronger relationship with your clients. This makes them less likely to seek discounts, thereby safeguarding your profits. Remember, when your clients feel they’ve received their money’s worth, they’ll see your fees as an investment rather than a cost.
Time is money, and precision is paramount. Profit leaks are not just inevitable by-products of a bustling practice – they are avoidable pitfalls that, when addressed proactively, can be turned into opportunities to build a more robust financial structure. Now is the time for your firm to take control, implement the changes necessary to enhance your time recording and billing accuracy, and to redefine the role of discounts in your fee strategy.
