{"id":11229,"date":"2022-11-21T14:47:10","date_gmt":"2022-11-21T21:47:10","guid":{"rendered":"https:\/\/nqzw.com\/?p=11229"},"modified":"2022-12-01T19:43:44","modified_gmt":"2022-12-02T02:43:44","slug":"improve-law-firm-realization","status":"publish","type":"post","link":"https:\/\/zebraworks.com\/en_gb\/improve-law-firm-realization\/","title":{"rendered":"\u2018Tis the Season to Raise Rates \u2013\u202fOr Is It?"},"content":{"rendered":"\t\t
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The average small law firm collects $748 for every $1,000 in billable work, while large law does slightly better at $770 out of every $1,000<\/span>.<\/span> <\/span><\/p>\n

Either way, firms aren\u2019t getting paid for 30%+ of the work they do. Optimizing this disconnect is the easiest way to change how partners feel about their financials. <\/span> <\/span><\/p>\n

The 30%+ gap comes from two levels: how much of an attorney\u2019s work gets billed, and then how much of that gets paid. We call that billed realization (average 85%) and paid realization (average 89%). <\/span>Assuming you have those performance numbers handy \u2013\u202fand absolutely every firm should<\/span><\/a> \u2013\u202fbefore you congratulate yourself or become too glum on your performance, it\u2019s important to realize that it changes dramatically based on practice area, from government at 97% to bankruptcy at 72%<\/span>. <\/span> <\/span><\/p>\n

Firms often make up for these issues with a simple tactic: raising rates. Given inflation, rate increases are getting a lot of attention in firm management committee meetings these days. That\u2019s going to be a two-way conversation with clients, who are having the opposite meetings, focused on keeping costs level. Something else to think about: as rates have increased the last few years, realization has decreased in similar fashion, neutralizing the affects of the rate increases. <\/span> <\/span><\/p>\n

What if, instead of raising rates, or in addition, you focused on closing the 30%+ gap? <\/span> <\/span><\/p>\n

Easing in \u201cFavored\u201d Clients<\/span><\/b> <\/span><\/p>\n

In regards to raising rates, there is often resistance to applying those increases to existing \u201cfavored\u201d clients. This results in a hidden reduction in realization not reflected in firm reporting and often forgotten in client negotiations to get paid.<\/span> <\/span><\/p>\n

As an alternative, consider negotiating with that favored client for a period where you agree to do write-downs to the original rate. It\u2019s then properly reflected in your analysis, the client understands the special dispensation they\u2019re receiving, and you have a built-in timetable to catch up with the new rates.<\/span> <\/span><\/p>\n

Speed Kills<\/span><\/b> <\/span><\/p>\n

Speed kills \u2013\u202fit kills lost money, it kills the 30%+ gap. The faster everything happens in your billing process, the more your realization numbers will improve. <\/span> <\/span><\/p>\n

When you add WIP turnover (the number of months it takes to bill work-in-process) to A\/R turnover (the number of months it takes to get paid), the average is 4.5 months. That\u2019s 4.5 months from when you did the work to when the client pays for it! We want to reduce this time to keep the value fresh in the client\u2019s mind.<\/span> <\/span><\/p>\n

Fast Billing<\/span><\/b> <\/span><\/p>\n

WIP turnover is completely in the firm\u2019s control. That doesn\u2019t mean it\u2019s easy, but focusing on it by aligning attorney incentives with sufficient billing staff resources works. Combined with workflow automation to remove manual steps, you can have a material effect on WIP turnover.<\/span> <\/span><\/p>\n

If you still have some printed statements being mailed, now is the time to make the jump to all email, all the time. <\/span> <\/span><\/p>\n

Next step is reducing A\/R turnover:<\/span> <\/span><\/p>\n

Consistent Communication<\/span><\/b> <\/span><\/p>\n

Our goal is simple: consistent, professional communication for following up on A\/R. Define follow-up messages up front so that your billing clerk doesn\u2019t have to figure out what to say in regular Over 30, Over 60 and Over 90 messages.<\/span> <\/span><\/p>\n

It\u2019s always a challenging subject when reaching out to clients, but the results speak for themselves. You may need to start with a smaller group of billing attorneys to show the way for the rest of the firm. We\u2019ve found some effective ways to get attorney buy-in:<\/span> <\/span><\/p>\n