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July 14, 2022

Leading the Way: The Business of Law in 2022 and Beyond – Part 6

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Lead the Way with Strategies for Analyzing Profitability

About the Leading the Way Series

“Leading the Way: The Business of Law in 2022 and Beyond” from SurePoint Technologies is an eight-part series focused on helping mid-size firms understand their competitive advantage. Throughout the series, we’ll share tips on how forward-thinking firms can thrive now and in the years to come. In the latest post, we’ll examine strategies mid-size law firms can use to analyze their profitability.

Profitability Requires Continuous Analysis to Manage Your Business

Whether you’re keen to embrace the idea or not, your law firm is a business. Although law firms have their own business model, like any business, they still require adequate revenue to cover their costs and thrive.

While delivering excellent work is of paramount importance, it is just as important to understand your firm’s financial success.

Analyzing and tracking profitability is essential to knowing if you’re bringing in enough revenue to cover your expenses and prosper. When you track profitability, you’ll know whether you’re on track financially, and have an early warning system when you aren’t meeting essential metrics. This, in turn, enables you to take quick action and make adjustments to optimize your financial performance.

Understanding Profitability

Profitability refers to the income your firm realizes less any expenses. Understanding your revenue is vital, but profitability shows you how much money your firm keeps after the bills and salaries are paid and you have accounted for overhead costs. Your firm may have high revenue, but the higher your expenses the less profit you will realize.  

For example, if you bring in more clients and your revenues go up, that doesn’t mean your profits will automatically increase. If the costs of serving new clients are high, your profit margin will remain about the same or may even be reduced. To boost your profitability, your law firm must maximize revenue while minimizing costs all without sacrificing quality.

How? You can get started by identifying and analyzing the following key areas:

  • Matter Types
  • Client Management
  • Billing Rate Realization
  • Best Use of Time

In the following paragraphs, we’ll take a close look at each of these areas to understand how they provide insight into your firm’s profitability. Using legal technology, like SurePoint’s Legal Management System (LMS), to set metrics and track your law firm’s progress is another way. When you have this information readily available, you’ll know whether or not your firm is realizing a healthy return on investment for your efforts. If not, you can make adjustments as necessary.

Matter Types

Certain matter types are more profitable than others. This is due to several factors such as:

  • Costs associated with managing matters/cases or clients
  • Costs associated with acquiring clients
  • How much clients are willing to pay
  • How long matters take to resolve

Legal technology lets you track how long the process is, from finding a potential client to closing that client, what areas of your law firm are most profitable, and where you could boost your profit margin by streamlining processes.

Client Management

How you manage client relationships has a significant impact on your profitability. Not only does effective client management result in positive and long-lasting relationships with your clients, but it’s also an area where technology can assist you.

Instead of spending hours each day nurturing clients and sending them information on their cases, client relationship management (CRM) and practice management technologies foster those relationships. CRM can help you understand and uncover the relationships that exist at your firm. Law firm-specific CRM platforms like ContactEase understand how lawyers work making it easier to track touchpoints and encourage user adoption. When you add additional technology like an enterprise relationship management (ERM) tool you can go beyond who knows whom and begin to understand who knows them best. This knowledge allows you to make better-informed staffing decisions and even identify opportunities to cross-sell your services to current clients.

As important as it is to manage your clients, it is equally as important to understand which clients and practice areas are making a positive impact on your firm’s growth. This requires understanding how your rates compare to your costs. Armed with this intelligence, you can create profitability models for projects, clients, matters, and practice areas. This gives you the economic facts on where the profit centers are within your law firm. Conducting a profitability analysis empowers you to make the right decisions about which new clients to bring in and the practice areas to focus on. As competition for business increases, you can leverage these insights to shape your business development efforts and your firm’s growth strategy.

Billing Rate Realization

A vital way to measure your firm’s financial health is to examine your billing rate realization, the percentage of the posted hourly billing rate the client pays, minus discounts and write-offs. Many firms aim for a 90% realization rate, meaning anything below 90% indicates analysis is required to increase that percentage.

Small adjustments in your realization rate can significantly impact your profitability. Among the shifts you can make are offering fewer discounts to win business, engaging in fewer pre-bill writedowns, and communicating more openly with clients about pricing.

Exploring which attorneys or practice areas have lower realization rates identifies which practice areas require further adjustments to pricing, workflows, or client communications.

A low utilization rate may indicate that the lawyer is too focused on administrative tasks, not accurately capturing their time, or not effectively using their time.

Use of Time

You only have so many hours each day, and ideally, most of those are spent on billable work. Unfortunately, that is not always the reality.

Efficient law firms understand the need to leverage technology to automate tasks that are manual and repetitive.  The opportunity to use technology which eases the administrative burdens that legal professionals face enables them to shift the time they would have spent on manual tasks to higher-value work for clients. High-value work is less likely to be written off or written down. Legal technology further enables the firm to improve overall efficiency and productivity. For example, rather than manually reviewing and approving paper bills, automated workflows can be set up to speed up billing and dashboards which enable you to see all client data in one place. Think of the time savings alone.

When considering time, it’s also important to think about another topic near and dear to many lawyers’ hearts, and a common source of frustration – keeping track of your firm’s billable hours. As we discussed in our last post, firms that utilize technology for contemporaneous (or automated) timekeeping are leaps and bounds ahead of those who do not. Accurately capturing and invoicing billable time is the main component in increasing your profitability. With the technology in place to maximize profitability, it only makes sense that forward-thinking firms would want to continue to improve and grow. And with the right technology platforms and processes in place, they can!

Final Thoughts

Legal technology enables law firms to better understand their profitability, which is key to fostering growth and ensuring long-term success. Mid-size firms benefit from automated and repeatable workflows, ensuring processes are consistent across the firm. They also benefit from more efficient and accurate tracking, analysis, and reporting, helping them identify issues and respond accordingly.

Read All Posts in the “Leading the Way” Series

Are You Ready to Lead the Way?

Schedule a demo to learn more about how mid-size firms are leading the way, finding their competitive advantage, and unlocking higher performance with SurePoint.

About SurePoint® Technologies

SurePoint® Technologies is the leading provider of award-winning enterprise software that improves workflow and maximizes financial performance and profitability for law firms nationwide. Its distinctive cloud platform integrates client management, practice management, and financial management for powerful relationship-building and knowledge-sharing capability. With a community of more than 100,000 members, SurePoint continues to transform the legal industry by enabling law firms to unlock higher performance, freeing lawyers of administrative burdens so they can spend more time focusing on their clients and their practices. Learn more at