Strategies & Tools for Improving Performance in a Hyper-Competitive Legal Market

Presented by:

Brian Kennel Performance Management Consulting, LLC

[email protected] (504) 858-7428

mailto:[email protected]

Strategies and tools for improving performance

Under 10 Attorneys Sept Oct 26 to 50 Attorneys Sept Oct

Headcount 154 149 Headcount 707 710

RPL assumption 275,000 275,000 RPL assumption 325,000 325,000

Estimated Market Size 42,350,000 40,975,000 Estimated Market Size 229,775,000 230,750,000

Firm count 20 20 Firm count 20 20

Average revenue per F 2,117,500 2,048,750 Average revenue per F 11,488,750 11,537,500

11 to 25 Attorneys Sept Oct Sub-total Under <=50 423,025,000 421,125,000

Headcount 503 498 Headcount 1364 1357

RPL assumption 300,000 300,000 Firm Count 72 72

Estimated Market Size 150,900,000 149,400,000 Average revenue per F 5,875,347 5,848,958

Firm Count 32 32

Average revenue per F 4,715,625 4,668,750 51 +(NOLA Only) Sept Oct

Headcount 1495 1496

Firm Count 8 8

Market Summary Report Market Summary Report


Billable Hours and Rate

Billing Rate Billable Hours

0

5

10

15

20

25

30

35

40

45

CO

ST P

ER H

OU

R

BILLABLE HOURS

NON TIMEKEEPER COST PER HOUR AND BILLABLE HOURS

OH PR CPH

NON PR CPH


Wide array of capable competitors

Market is not dependent on large firms

Low barriers to entry

Opportunity for real cost advantages

Clients are not bound by firm size


Distribution of Fee Billings % (CounseLink)

Firm Size 2010 2011 2012 2013

>750 18 25 18 19

501-750 15 14 12 14

201-500 18 20 25 22

51-200 11 12 15 10

<50 30 30 35 33

6


COUNSEL LINK DATA (YE 2013) Practice Area Partners Associates Paralegals M&A 500 325 195

Gen Corp, Tax 475 300 190

Environmental 375 275 110

Emp. & Labor 365 250 125 Regulatory/ Compliance 400 295 150

Commercial & Contracts 350 250 125

Real Estate 330 250 185

Finance 390 285 140

IP-Trademark 525 380 190 IP-Patent 400 275 125

Litigation General 250 200 100

Insurance 175 150 95

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Annual billing rate growth for litigation services is less than 2%

General Litigation billing rate growth at 2%.

Annual Labor and Employment billing rate growth was 2.5% for the

four year period but has pulled back to under 2%

Intellectual property, Tax, M&A and Finance, Loans and

Investments, are all growing in excess of 2.5% annually, with better

results in the most recent year

PMC Managing Partners Spring

2014 8


Existing position in the client’s buying strategy

Existing and foreseeable market factors

Efficiency of client staffing

Efficiency of overhead

Intangible factors including volume and training

opportunities

Opportunity costs.


Resource for determining billing rates

Determining the efficiency of client staffing

Gauging the efficiency of overhead

Identifying alternatives to increasing rates in

high volume and highly competitive situations


Client Profitability Sample

ClientNetIncomeReport.pdf


The market for legal services is becoming increasingly,

but not totally, intolerant to rate increases

Firms must understand how they fit into a client's overall

legal spend


If a firm is at the top of a client's list, then raising rates

may provoke or incent a client to consider alternatives.

Firms that raise rates to cover inefficiencies are at risk

Clients may even consider shifting volume to higher priced

competitors who were previously at a rate disadvantage


Ownership

%

All Compensation

(2)

Base Compensation

(2)

Bonus (3)

Ownership % 73% (1) 30% 54% 23%

Formula 0% 20% 15% 15%

Subjective 0% 0% 0% 8%

Formula and

Subjective 9% 20% 15% 23%

Black Box 9% 10% 8% 8%

Client Profitability 9% 20% 8% 23%

1: No automatic adjustments of ownership percentages

2: Formula adjustment of compensation and ownership % run between 1 and 3 year moving av..

3: Formula bonus are normally based on 1 year performance.


Working attorney (1) Originations (2) (OA) Profitability (3)

Competitive pay ranges 25-35% 20-35% 80-85%

1. Pure working attorney results without regard to origination

2. Payout on origination collections including OA working attorney collections

(originators double dip)

3. Competitive payouts on profitability of are in these ranges, which are very

difficult to achieve for some

4. Factors influencing 1 and 2 include how much an originator works on his or her

own files

5. The most common range is 35%/25%, depending upon profitability, practice

size and employee or independent contractor/employee status


Non Partner/Lateral Working attorney (1) Originations (2) (OA) Profitability (3)

Competitive pay ranges 30-35% 20-25% Result dependent

1. Recommend a 3 tier system of working attorney share, origination share and

client profitability bonus

2. Working attorney share depends on employment status, rate and level of

production

3. Originations depend on level of business and profitability

4. Profitability may be a dollar one split or a split after a threshold

5. Best way is to run client profitability models to determine how much is available

for compensation under any model. For example, if 35/25 is too rich scale back

6. Base salaries are okay as long as they are reconciled to profitability


Firms that started in the late 90’s/early 2000’s are aging

Litigation experience is increasing more difficult to obtain

Timelines are shortening and firm’s are turning away from

organic solutions

Laterals are viewed as a solution


How do you know if you have a lateral with the right

priorities?

Concerned with the firm’s ability to pay competitively

Has desire to eventually impact the priorities of the firm

Concerned with access to capital to maintain or grow their

practice

Sees a benefit from the firm’s reputation, members


If you put laterals through this process, you will learn

most of what you need to know about them and their

practice

Including and market based comparison to this

process will indicate whether a firm’s cost structure is

competitive

If a firm is seeking laterals to improve their cost structure,

mistakes will be made

C:/Users/Brian/Dropbox/PMC Private Client Folder/PMC/PMC Marketing/Speaking Engagements/LAW FIRM LEADERS/Lateral Model.xlsx


Marketing in most firms is heavily influenced by cultural factors

Partners with large books of business need a completely different

strategy than upstarts and support partners

Partners that have large books of business can become

desensitized to the reality of the today’s marketing

Those that can combine the time tested techniques of

interpersonal relationships and new technologies will be most

successful


Decentralize marketing control now

Expand the definition beyond the customary travel and

entertainment and websites

Include the costs of content marketing in the mainstream of the

firms strategies and tactics

Content marketing example:

Allow lawyers the flexibility to hire their own resources

Funding can be based on a plan

http://performlaw.com/smart-law-firms-are-rethinking-their-approach-to-marketing/


I think small and midsized firms that take a market based

approach to marketing and cost management will continue to do

very well

Client pressures regarding litigation coupled with a short term

mentality will create of group of weaker talent starved firms

Smart firms will take advantage of that weakness and will be

rewarded by these same clients

Clients will continue to look for value and large firms will struggle

to compete


There are a number of articles and resources on our

website and blog.

http://www.performlaw.com

http://www.performlaw.com/blog




Survey Data –LexisNexis CounseLink

CounselLink is a bill auditing service. CounselLink clients are

normally substantial purchasers of legal services.

CounselLink staff analyzed data from a pool representing $10

billion in actual legal bills, 2 million separate invoices and 300,000

unique matters over a four year period to support their findings.

The complete survey may be found at

http://www.lexisnexis.com/counsellink/resources/industry-studies/

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Strategies & Tools for Improving Performance in a Hyper-Competitive Legal Market

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