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How to make your law firm more profitable

One of the top business struggles encountered by lawyers from firms large and small is getting paid.

Collecting legal fees can sometimes be challenging, especially since clients avoid paying bills for several reasons. Some have cash flow issues, while others require increased payment flexibility.

Fortunately, lawyers can take steps to increase collection rates on legal bills and ensure that their clients remit payment promptly. For example, recent data shows that the more payment options you offer clients, the more likely your firm will get paid. The end result is increased profitability.

For proof of this, let’s consider the legal billing process. If your firm is like the majority of law firms, it bills by the hour. In order to accurately bill clients, all billable time must be tracked.

Unfortunately, lawyers often fail to capture all billable hours worked. This is because it’s difficult to contemporaneously track all of the work done on a daily basis.

Fortunately, there are ways to increase time capture rates, as shown by data from a recent report. According to the findings of this report, lawyers who used a passive time-tracking tool, which operates in the background and captures work done within a software program, recorded an additional 186,214 billable hours in 2021.

Assuming a $350 per hour billing rate, lawyers who used this feature billed an extra 25 hours of billable time in 2021, or an additional $8,600 per lawyer.

There are other ways to increase law firm revenue as well. In addition to capturing more billable time, law firms can offer clients increased payment flexibility. Doing so makes it easier for clients to pay legal bills on their terms. One way to do this is to allow clients to pay legal bills online using credit or debit cards.

For many years, lawyers were reluctant to accept credit cards, but due to a number of factors, not the least of which was the pandemic, times have changed. According to the results of a legal industry survey that will be released later this year, the vast majority of law firms (84%) now accept online payments via credit cards and ACH payments from their clients.

There are many reasons why most law firms now accept online payments. For starters, legal bills are more likely to be paid in full. According to the results of a 2021 legal industry report, more than half of the legal professionals surveyed (61%)  shared that their firms collected more money by accepting payment using online payment processing software. Thirty-six percent collected “somewhat more money,” and 25% collected “significantly more money.”

Data collected for a third report supports their experiences. In that report, data on the amounts collected by law firms using online payments in 2021 was compared with data on the amounts collected by law firms that did not. The collection rates for the firms that accepted online payments were nearly 10% higher than those that didn’t. Also notable was that lawyers whose firms accepted online payments received invoice payments 32% faster than law firms that did not.

This same report provides another benchmark that can be useful when determining what to charge for your firm’s services: the rates charged by other similarly-situated  lawyers in your region.

This data is important since increasing rates is a key way law firms can increase revenues. The challenge, however, is that it can be difficult to adjust rates to keep up with changing economic times. It’s easy to get stuck in a billable rate rut, partly because it’s often difficult to determine what other lawyers in your area are charging for similar services.

That’s where the billable rate data from this report comes in. Using this data, you can compare your law firm’s billable rates for different types of matters with anonymized data from other lawyers in your geographic region who handle similar cases. You can view the hourly rates of lawyers in your area here.

Based on this data, consider changing the rates that your firm charges. By doing so, you may be able to increase long-term profitability.

The data in the column was obtained from four sources: The 2021 MyCase Legal Industry Report, Parts 1 and 2 of the 2022 MyCase Benchmark Reports, and the not-yet-published 2022 MyCase Legal Industry Report.       

Nicole Black is a Rochester, New York, attorney, author, journalist and senior director of SME and external education at MyCase legal practice management software. She can be contacted at [email protected]