Law Firm Profitability Analysis

Recently, DFTech was asked to participate in a study to help provide insight into how law firms are currently leveraging the various concepts and metrics for firm profitability to help them run their business more effectively while continuing to provide a high level of value to their clients. The study, by Jim Hassett at LegalBizDev, was recently published under the title Client Value and Law Firm Profitability. It is a fantastic read for anyone interested in the topic as it attacks the issue of profitability from many different angles and provides insights from firm leadership at many of the nation’s most influential firms. In addition, other profitability experts are consulted extensively, and that is where DFTech comes in. For those readers who would like to find out more please visitwww.legalbizdev.com.

DFTech’s participation in the study was largely geared toward how firms choose to

    measure profitability. In fact this was one of the first questions asked in the interview. After thinking about it for what seemed like an eternity, the only answer I could provide was, “differently”. DFTech has assisted many of the nation’s leading firms to establish and implement consistent profitability measurement practices. DFTech’s Intellistat Analytics product systematically computes and measures profitability at all component levels within a firm (Office, Practice, fee earner, Book of Business, Client, Matter etc.). A critical phase in the implementation of profitability measurement processes is what we call “profitability discovery analysis”. This is a meeting, or roundtable discussion, where many ideas are floated as to how to best measure profitability at the particular firm. In almost every meeting, the first question I am asked by the client is, “What do other firms do?” I think the reason this question gets asked so much is because firms generally want to measure profitability like everyone else does, assuming that the other firms who have preceded them in this initiative have gone through the pain of pioneering and have come out the other end successfully achieving their desired goal.

However, in all of my years helping firms arrive at the right way to measure and analyze profitability, I can definitively say that no two firms measure it exactly the same way. There are many similarities and best practices in this area, but each firm should personalize the measurements to suit their unique characteristics and priorities (which is exactly what Intellistat Analytics allows firms to do). Each firm is unique in its makeup, geography, size, specialties personalities, etc. As such, the key in any sort of profitability model is making sure that the methodology provides a consistent way of measuring profitability on a relative basis. Importantly, the specifics of the chosen method may be less important than whether or not the methodology has internal “buy-in” from firm leadership. Since this sort of analysis can be controversial, and most firms are led by professionals who love a good debate, a good model is one that minimizes this debate and provides an accurate set of metrics for relative profitability within the firm, based on that firm’s specific requirements.

Jeffrey Suhr, SVP Products, DFTech