Efficiency and billing in law firms

Monday 11 September, 2023

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Did your law firm bill more last year than in 2021?

90% of firms did, and 65% increased their profits. Why is that?

Well, taking a sample of the top 100 firms:

  • There was an average 3.6% decrease in equity partners’ chargeable hours
  • There was an average 7.6% increase in fee per fee-earner

The numbers suggest that not only were most firms making more money, but some were billing more for less work.
How are they managing that, and can all firms replicate it?

How are firms improving their efficiency?

If you look at the investments that firms made in 2021, it’s clear that productivity was a major focus.

  • 50% invested in tools for quicker or more efficient legal work
  • 48% invested in collaboration tools (internal and client-facing)
  • 39% invested in optimising their operations
  • 16% invested in technology to support remote work

The data suggests that those investments are paying off. Let’s look at each one.

Legal efficiency tools

Every firm will want to be efficient in terms of filling each day with as much profitable work as possible, and spending as little time as possible on work that doesn’t generate revenue. However, it’s interesting to see how common it is for firms to invest in faster, more efficient legal work, given the debate as to whether those who bill by the hour are motivated to work efficiently.

A firm on a flat-fee has a clear incentive to conclude a matter as soon as possible. They get the same fee, however long it takes, and the sooner they finish a case, the sooner they can accept another instruction. On the other hand, a firm that bills by the hour could drag the matter out and earn more for doing so. At least, that’s what a client may fear.

Even if a firm did work that way, it may not be deliberate. Rewarding fee earners for billable hours could incentivise them to elongate processes to meet their targets.

Looking at the investments that firms are making in quicker legal work, it would suggest that they are taking a longer-term view — working effectively (and less expensively) means happier clients, more repeat business, and more referrals. Plus, whatever the billing model, efficient work means more capacity to take on clients with the existing headcount.

Collaboration tools

Firms are recognising that the more joined up and aligned their processes and teams are, the more efficient their work is.

Since 48% of firms were investing in collaboration tools in 2021, that suggests they were at least partly doing so to adapt to a hybrid work system, and that they expected remote working would be permanent.

With hybrid work, the nature of collaboration changed. Ongoing dialogue between teams is less natural and common when they’re in different locations. Sharing information and asking questions are more deliberate acts — rather than simply speaking, a colleague has to take a moment to compose a message or an email, which can be deceptively disruptive to their momentum and the recipient’s.

Post-pandemic, it’s also less common to meet clients (or meet them regularly). Outward-facing collaboration tools mean that work is more visible, clients feel more in the loop, and communication and updates are more efficient.

As well as investing in technology, a significant majority of firms (75%) decided to repurpose their offices to make collaborative work easier. Exactly what ‘repurpose’ means will be highly individual, but we can assume that many anticipated having fewer staff present at any given time, meaning the office layout could be laid out to be more inclusive, rather than just space-efficient.

It might also mean that firms invested in tools for things like video conferencing, so that remote colleagues or clients can be part of meetings more smoothly and productively.

Tools to optimise operations

Firms will want to complete all necessary but non-billable work as quickly as possible without sacrificing thoroughness. Technology can help people complete routine tasks more efficiently, and in the case of automation, it can complete those tasks on its own. The promise of a tool to handle the tedious and unprofitable aspects of legal practice will be appealing to just about every firm.

What firms may start to see is an AI arms race of sorts. Firms that can out-spend their rivals may then be able to out-compete them. They may choose to pass on the savings from their new efficiency in the form of lower fees, or simply a better experience and a quicker outcome.

Remote working tools

The majority of hybrid or remote workers think they’re at their most efficient when working from home, but a lot of bosses disagree.

Investment in remote working technology aims as far as possible to eliminate any difference between home and office efficiency. That could include:

  • Collaboration tools as above
  • Security software that means remote workers don’t need to take extra steps to work safely
  • Employee engagement or work-life balance platforms that ensure all teams feel cared for, and make sure teams don’t burn out by falling into an ‘always-on’ culture

Has your firm invested in efficiency? If so, how, and what were the results?

Join the conversation with other Practice Managers on the Insight Legal LinkedIn page.