Moneyball for Lawyers: How to Build a Major-League Law Practice

Presented April 23, 2013 Christopher T. Anderson, J.D.

LexisNexis Firm Manager® Product ManagerDad & Pilot

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Christopher T. Anderson

Christopher Anderson, J.D.Product Manager for LexisNexis Firm Manager®, LexisNexis •Mr. Anderson is the Product Manager for the LexisNexis Firm Manager application in Cary North Carolina.  •Firm Manager is a web-based practice management system that keeps the attorneys and staff of small law firms connected to all the details of their clients, cases, matters and firm business.  •Christopher has presented at various State Bar associations, Law Bulletin Ethics Conference, National CLE conference, ABA TECHSHOW, and draws several hundred to webinars where he presents various topics, including running a law firm; effectively using technology and leveraging staff; and technology and trends. 

Formerly:•Managing partner of a full-service law firm in Georgia.  •Assistant district attorney in New York City, and in Georgia•Associate General Counsel and Director of Client Services for RealLegal, a legal software company.  Mr. Anderson is a graduate of Cornell University, and received his Juris Doctorate from the University Georgia School of Law in 1994. Christopher Anderson is admitted to practice in the federal and state courts of New York and Georgia.

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Moneyball – The Movie

Inspiration – the movie, Moneyball In 2001 Oakland A’s $40M vs. $115M, limited budget

compared to other ball clubs Billy Bean (Brad Pitt) was a baseball player that

turned General Manager Braintrust – Statistics – Reinvents the Game

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Agenda

Six Numbers Law Firm Stakeholders Should Know

Investing time in your law firm

Law practice vs. Law firm business

Developing a roadmap

Evaluating Clients

Working within your budget constraints

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Why You Should Care

Source: Altman Weil 2012 Law Firms In Transition

Permanent Change 2009 2012

More Price Competition 42.4% 91.6%

More commoditized legal work 25.5% 83.6%

More non-hourly billing 27.9% 80.0%

Fewer equity lawyers 22.8% 67.6%

More contract lawyers 28.3% 66.2%

Lower PPP/Slowdown in PPP 13.2% 47.7%

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Metrics Law Firms Should Measure

What is your law firm's overhead?How do you determine what it is?• Overhead analysis (1) fixed and (2)

incremental)• Infrastructure cost (What it takes to stay in

business – fixed costs)• Cost per client acquisition (CPA -

incremental cost to bring in a client)

What does it cost you to service the client?• Salary Costs• Direct Costs

Cost Of Servicing A Client

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Metrics Law Firms Should Measure

2Profitability sliced and diced

By Firm

By Practice

Area

By Partner

By Client

By Billing Staff

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Metrics Law Firms Should Measure

According to a LexisNexis market research conducted with law firms with 1 – 100 attorneys in May 2011

» Most Solos and Duos limit their marketing to personal networking and through their website. Larger firms also leverage email lists and directories.

ALM Legal Intelligence and The National Law Journal 2012 Survey of Law Firm Economics shows:

» Only 3% of law firm revenue is spent on marketing 

3Client development / marketing % of total revenue

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Metrics Law Firms Should Measure

Technology Spend as a % of Total Revenues

• ABA Technology Basic Trends Report shows law firms have increased their technology budget year over year with a 5% increase from 2011 to 2012

• On average 58.7% of law firms overall have a budget

~ 2-4% spent on technology as a % of firm revenues

• The average capital budget per lawyer “sweet spot” was a range between $8K – 17K

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Metrics Law Firms Should Measure

1. how much you work vs. bill2. how much you discount/write-down (before

you bill3. how much you write-off (after you bill)4. how much you collect5. life-cycle of AR (time of service to payment)

Realization

PROCESS IS A FORM OF TECHNOLOGY

Not Rocket science all in your control

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Five Key Drivers of Law Firm Profitability

Production Value

Utilization

Realization

Leverage

Margin

• The standard value of production• Standard rate * standard hours = expected production

from a partner, lawyer, paralegal or other timekeeper

• Measure of timekeeper efficiency• (Actual number of hours worked * standard rate) / the

production value

• Amount of receipts received net of• Any write-ups or write-downs performed at billing• Any credits or write-offs done at time of receipt

• Number of billable staff per partner• Measures on average how much staff supports each

partner

• Difference between your receipts and expenses• How well do you manage your expenses?

Recommend:Calculating Profitability, By James D. Cotterman 

Copyright © 2011, Altman Weil, Inc.

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Metrics Law Firms Should Measure

In order to measure against a benchmark, you must have a baseline

• Develop a budget that includes all cash inflows and outflows

• Determine Partner Net Income (compensation, fringe-benefit costs, retirement plan contributions)

Industry Benchmarks

So What is a Good Benchmark?

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Benchmarks

SOURCE; Managing Partner Forum – 2012 Law Firm Economic Survey  http://www.managingpartnerforum.org/tasks/sites/mpf/assets/image/MPF%20-%202012%20Survey%20of%20LF%20Economics%20-%20Exec%20Summary%20-%209-20-12.pdf 

Joint ALM Legal Intelligence & The National Law Journal Survey of Law Firm Economics 2012

• For law firms with 1 to 75 attorneys:• The average total expense as a % of revenue is: 55%• The average income per lawyer as a % of revenue is: 45%

• 66% of law firm expenses are from salaried lawyers, paralegals and staff (36% lawyers, 30% staff & paralegals)

• 10% of law firm expense is for occupancy costs• 4% for equipment (?Technology?)• 34% of law firms said 10% of billings come from AFAs

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Investing Time In Your Law Firm

Do you know how you spend your time that you are not billing?

Are you investing your time wisely on your business?

Investment in the Business

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Developing A Roadmap

•What project to tackle first?

•Calculating an estimated ROI

•Use a rating system to help prioritize projects

Getting Started

Policies

People

Procedure

Systems

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Hierarchy of TasksYour Goal:  Move up the Ladder

• Marketing/Client Development

• Client Relationships

• Strategic Planning

• Strategic Management

• High level legal skills

• Middle level legal skills

• Client service

• Technical legal skills

• Systems documentation

• Office Management

• Mail and email

• Attorney Desk and Office Organization

• Telephone answering

• Supplies

• Clerical

• Bookkeeping

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Client Evaluation

All Clients Are Not Equal

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www.lawyermoneytour.com

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Budget Constraints

Measurement = Performance

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Believing in Success

What you know is comfortable.

Is that truly what you’re working for?

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Q & A

Conclusion – Question & Answer Period

Moneyball for Lawyers: How to Build a Major-League Law Practice

Christopher T. Anderson, J.D.Christopher.T.Anderson@lexisnexis.com

Sponsored by: LexisNexis Practice Management

Visit us at: http://www.lexisnexis.com/law-firm-practice-management/

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Sources

Altman Weil 2008 Economic Law Firm Survey -http://www.altmanweil.com/dir_docs/resource/41ff6ad2-da67-406e-9999-ca2aaae63539_document.pdf 

Managing Partner Forum – 2012 Law Firm Economic Survey  http://www.managingpartnerforum.org/tasks/sites/mpf/assets/image/MPF%20-%202012%20Survey%20of%20LF%20Economics%20-%20Exec%20Summary%20-%209-20-12.pdf 

2011 ILTA/Inside Legal Technology Purchasing Surveyhttp://insidelegal.typepad.com/files/ILTAInsideLegalTechnologyPurchasingSurvey2012.pdf 

Calculating Profitability, By James D. Cotterman Copyright © 2011, Altman Weil, Inc.

For Your Reference and Reading Pleasure