The Tale of Hours and Revenue
- Ariela Tannenbaum
Revenue Alone is Not Enough!
The year end results of this 40-attorney law firm are satisfying. Everyone is happy. Revenue is up by 4%! Everyone worked harder, number of recorded client hours is higher than last year, number of hours billed is up and revenue per hour is up. All is great!
What the firm is not aware of is how much money they are leaving on the table, year after year...$8.6m in 2017, worse than the $6m left in 2016!
Let’s take a closer look at the table below to better understand the source of the problem. In 2017 the firm lost $4m due to adjustment to billing hours and an additional $4.6m due to reducing the billing rate for a total erosion amount of $8.6m. The managing partner can now address the flagging productivity issues:
UTILIZATION: The partners are “shaving” down the hours recorded by the attorneys. The decline in utilization rate is offsetting the annual increase of 7% in number of client hours recorded by the attorneys.
Potential reasons: attorneys spending time on administrative issues, increasing manual input, misaligning attorney skill set/experience and tasks.
REALIZATION: Increasing fee pressure and “write-downs”. The decline in realization rate is offsetting the increase in revenue billed.
Potential reasons: The firm is underestimating the value of services, client demands, price competition, strategic discounts across the board. In addition, one must look closer at the practice areas and offices: is the problem associated with a specific practice area? A specific office?
CONCLUSION: Capturing, tracking, and analyzing the productivity trends is essential. We provide our clients the data and analysis needed to develop an actionable plan toward diminishing the revenue erosion and increasing financial performances. The financial lens is impactful.