Years ago, when I managed a company in the food industry, I met with a retail buyer who pulled out his computer analysis of how quickly products moved through his billing system. He made the criticism that my company’s products didn’t sell so quickly when compared to cheese or soap, which were also tracked on his printouts.
I pointed out that if he didn’t have a range of products with varied life cycles on the shelf, his customers would likely go elsewhere, where they could buy a full range of products without shopping multiple sites. Emphasizing only “quick-hit” profitability missed the underlying long-term profitability of addressing consumer needs.
What this has to do with law firms was suggested by a conversation I had with a firm managing partner, who observed that a national legal magazine’s publicly reporting annual financial information for the biggest law firms has transformed our profession. For the first time, he observed, law firms could compare information on revenue, revenue per partner, earnings per partner and other measures, much like publicly owned corporations. And just like companies trying to impress investors and competitors, law firms began to make decisions based on maximizing revenue and profits per partner.
As a result, they often fail to factor qualitative evaluation into a firm’s economic performance. Decisions based only on quantitative analyses do not address the full picture of how satisfactorily a firm is performing for both lawyers and clients.
In a sense this is inseparable from the rise of the billable hour. Until well into the post-World War II era, legal fees reflected the nature of the service, the result achieved and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment. That changed in the mid-1960s, when insurance carriers and clients began demanding detailed billing statements, and lawyers used time records to provide them. Bills became statistical “features” lists that did not address value and benefits – the worth, as opposed to the cost, of the service.
It is difficult to apply this to the kind of counselor who offers insight and judgment, not increments of time.
The result has been the kind of numbers dilemma that arises every day. If a lawyer is sitting on a plane or waiting at the courthouse in order to handle a matter for Client A, can he or she use that time to do work for Client B? The rules of professional conduct in most states require billing only one client at a time, because billable minutes are the measure of the fee. When splitting hairs like this puts the number first, it depreciates client service.
Hourly billing doesn’t address value and benefits – the worth, as opposed to the cost, of the service.
Statistical analysis can be a practical tool to help any lawyer measure personal and firm performance against objective standards. This makes “The Business of Law” understandable and makes the firm stronger as a result. Every law firm is a business, and every business should know where it’s going. Lawyers who understand statistical analysis of their firm’s operation can explore operating efficiencies, gauge the firm’s performance relative to its financial goals, and better assess and reflect value to clients in their bills.
But, we should never forget the quote attributed to Lincoln: “A lawyer’s time and advice are his stock in trade.” Without quality advice, and the value it provides, time is a poor measuring stick.
Edward Poll, principal of LawBiz Management, is a coach and law firm management consultant. He can be contacted at firstname.lastname@example.org.