The Business of Law
As attorneys, most of us have built our business models around the billable hour (although you should read our article on the evolving business model of law firms). But there are only 24 hours in the day to work, and if you want to sleep or see your friends and family, then there are far fewer hours available to work. This means that if you want your law firm to be profitable, you must delegate.
If delegation is so important to law firm profitability, why is it so hard to delegate? Why do we cap our potential? Why do we give in to the array of excuses that keep us from harnessing the superpower of delegation?
It begins in law school. Law school molds us to be focused on the provision of legal services. It teaches us to critically think like a lawyer, to do legal research, and to problem solve. Law school is geared to the theory and practice of law, instead of the business of law. But it does not teach us how to run our own firms or how to be good business owners. But that is exactly what we need to do, because lawyers are entrepreneurs. And this is true irrespective of whether you are a managing partner, a firm partner in big law, a solo practitioner, or an associate at a law firm.
As a lawyer, you must find the best way for you to market your legal services. You must hone your expertise in your practice areas to set yourself apart. You must determine how to best build your book of business. And you must establish, manage, and grow your law firm. The bottom line is that you are an entrepreneur.
“If you really want to grow as an entrepreneur, you’ve got to learn to delegate.” Richard Branson, Founder of Virgin Group.
If we do not delegate, if we do not leverage the time of other attorneys and professionals, then our income and profitability is capped. For those using the billable hour, the cap is simple to calculate:
hourly rate X number of hours billed to your clients X your realization rate
The important words here are “hours billed to your clients” and “realization rate”. The hours you spend working for your clients that are not actually billed to your clients cannot be counted as they do not produce any revenue. And the hours you spend handling administrative matters, developing clients, and running your firm cannot be counted because they too do not produce any revenue. Year after year, Clio’s Legal Trends Report shocks us with legal industry metrics finding that most attorneys in small firms bill less than four hours a day to their clients. So, while you may be working 12 hours days (and suffering burnout), if you are not delegating, you are billing your clients for only a fraction of the hours you are working each day. That means you are working for free the rest of the time.
And your realization rate is equally important. If you are not timely issuing your invoices (and I mean no later than the 10th day of the following month) and not timely following-up to ensure prompt payment (and I mean within 2 weeks), your realization rate is likely less than 75% and may be closer to 50% (or even lower). The simple reality is that clients pay their lawyers last and the staler the bill, the less likely it will get paid without a sizable discount. If you are one of the many attorneys who is too busy to get your bills out the door and too busy to demand prompt payment, you must delegate – now! Payment is critical to a successful law firm and too many lawyers fall into the trap of failing to put their business first. So, whether you delegate the legal work so you can get the bills out the door, you employ practice management software, or you delegate the billing to a staff member, a part-time employee, or freelance bookkeepers, you absolutely must make this a priority to maximize your revenue and profitability.
So, if we apply the formula using the constructs above, your total revenue (before even considering the costs to run your law office) looks something like this:
$400 X 1,000 (4 hrs/day x 50 wks/yr) X 75% = $300,000
So, how do you double, triple, or quadruple that revenue? One word - delegate!
The way to make more money, the way to grow your practice, the way to have more time is through delegation. By delegating, you get more done and because you are leveraging the time of other attorneys and paralegals, you make more money. But the best part is that not only do you make money off other people’s time, but you also free up your precious time.
So, where do you start? The first step is to consider:
When considering your goals, be quantitative and specific. “I want to take two two-week vacations where I don’t work” is far more useful than “I want to find time to relax.” Or, "I want to speak at one CLE, appear on a podcast, host two webinars, and post three substantive articles on social media each quarter" is much better than "I want to market more." You can take action on the former and ensure you schedule those vacations, CLEs, podcasts, webinars, and social media posts, whereas the latter is amorphous and not easily actionable.
Similarly, "I want to generate revenue of $1 million next year" is a much more useful goal than "I want to grow my firm." It is concrete and will assist your decision-making, allowing you to set short term goals to ensure you meet your longer term goal. For instance, if your goal is to generate revenue of $1 million next year, you can set four quarterly goals of generating $250,000 per quarter and monthly goals of $83,333. These quantitative, specific goals serve many purposes. They allow you to determine very quickly whether you are on pace to meet your long term goal. They also allow you to quickly course adjust and focus your time where it is most needed to meet your goals. For instance, one quarter it may be marketing and developing new business and the next quarter it may be handling a trial.
Deciding what not to do is as important as deciding what to do. – Jessica Jackley, Businesswoman and entrepreneur
The next step is to determine the things you should be doing to meet your goals and those that you should not be doing. This is the hardest part for most of us. We have this unfortunate belief that we must do everything ourselves, that our clients expect us to do everything, and that we will do it better. These are fundamental falsehoods in the legal profession that keep us from breaking through the self-imposed ceiling, exponentially increasing our revenue, and meeting our firm and personal goals.
This is a harder concept than may appear at first blush. Your highest and best use is not simply what you are doing now. It is not what you like to do. It is not even what you are good at. Your highest and best use is those tasks and actions that only you can do to meet your professional and personal goals.
The highest and best use for my practice is client development, client management, case strategy, and contested court hearings and trial. Modesty aside, I write a good brief and have strong research skills. And I like drafting briefs. But if I had focused on research and writing (instead of delegating these tasks to others), I could not have developed my business and increased my revenue year over year. I would have been stagnant – capped. Instead, I stopped, took stock of my goals, generated a plan, decided what work I actually needed to do to meet my goals, and then delegated the rest so I could focus my time growing my practice.
For those of you afraid of not having control of your pleadings and documents, don’t worry. I am not suggesting that you relinquish control. I am advocating for you to spend an hour putting your final touches on a brief or agreement, instead of the ten hours you would normally spend doing the entire pleading or document yourself.
Download the Delegation Worksheet to assist you in identifying exactly how you should be spending your valuable time and what you need to be delegating. Whether you are a litigator, family law attorney, real estate attorney, health care attorney, intellectual property attorney, criminal attorney, assist nonprofits or startups, or practice any other area of law, the Delegation Worksheet will assist you in making your law firm more profitable. With the Delegation Worksheet, you will:
For the legal work that is not the highest and best use of your time, freelance lawyers are the perfect solution. Whether you have determined that you need to delegate specific projects or whether you have 20 hours of work per week to delegate, there are remarkably talented freelance lawyers available to assist you. LAWCLERK is a great resource for finding the exact talent you need.
Let’s talk about the economics. If you have 20 hours of legal work per week (80 hours per month) to delegate, you can bill the freelance lawyer’s time just like you would a full-time associate in your brick and mortar office. If you pay $100 per hour to the freelance lawyer and you bill their time at the reasonable market rate of $250 per hour to your client, your net profit is $3,000 per week (or $12,000 per month). Plus, you now have 80 hours of your time back to dedicate to growing your firm and profits.
Even if you are not ready to commit to delegating a specific number of hours, you still need to be delegating the legal work that is not the highest and best use of your time on a project basis. It is a profit center and will give you valuable time back.
This example assumes you need a complicated motion in limine drafted (perhaps a Daubert motion). You could draft it yourself and consume days of your valuable time or you could have an experienced freelance lawyer draft it for you, thereby leveraging their time and allowing you to focus on meeting with potential clients, marketing, and growing your business.
If it takes the freelance attorney 20 hours to complete the complex motion and you bill their time to your client at the reasonable market rate of $225 per hour, the total billed to the client is $4,500. If you paid the freelance lawyer $2,000 ($100 per hour) to prepare the motion, your profit is $2,500, plus, you saved yourself 20 hours that you can better spend on developing your practice!
If you litigate, whether in family court, state court, or federal court, discovery is a necessary evil. Even if you do not hate doing it as much as I do, I am confident that you do not think drafting or responding to requests for documents, interrogatories, or admissions is the best use of your time. This is the perfect type of work to outsource. First, instead of procrastinating until the end of the discovery period, you can keep the other side on their toes and control the pace of the case by quickly propounding your discovery. Second, you can leverage the freelancer lawyer’s time to make a profit for you while you spend your time focusing on your business and clients.
If it takes the freelancer lawyer 10.4 hours to draft initial requests for documents, interrogatories, and admissions and you bill their time to your client at the reasonable market rate of $225 per hour, the total billed to the client is $2,340. If you paid the freelance lawyer $780 ($75 per hour), your profit is $1,560, plus, you saved yourself 10.4 hours, you didn’t have to draft the discovery, and you won’t be scrambling to get your discovery done as the discovery window closes.
Can you make a profit if you bill on a flat fee basis? Yes! Say you charge $1,000 to prepare a lease and it takes you three hours to prepare it. This equates to a $333 hourly rate. If, instead of drafting it yourself, you pay a freelance lawyer $400 to prepare the lease or trust and you spend one hour reviewing and finalizing the lease, your effective hourly rate is now $600. This is nearly double your effective hourly rate and you saved two precious hours.
Having identified what you can and should delegate, now just do it! Whether you need a virtual receptionist, intake specialist, bookkeeper, marketing specialist, or attorney, there are numerous companies dedicated to helping you get the assistance you need without the burden and expense of full-time employees.
Freelance lawyers: LAWCLERK
It's time to stop making excuses and to put your business first. Complete the Delegation Worksheet and harness the superpower of delegation!
Talitha Gray Kozlowski is a founding partner at Garman Turner Gordon LLP, a boutique law firm with a national reputation in the area of corporate debtor representations in Chapter 11 bankruptcy proceedings. Talitha is also a co-founder at LAWCLERK which provides virtual associates and freelance lawyers to growing firms focused on increasing their profits.