The Future of Profitability Models and Analysis for Law Firms
Dwight Floyd, James D Cotterman, Eugenia Frenzel, Timothy B Corcoran, Peter Lane Secor, Ron Paquette, Thomas W Van Der Moere, Eddie Raychaudhuri, Madhav Srinivasan, Jim Foley
This book combines trendspotting, exploratory intelligence with case studies and real-world examples of best practice.
The "business of law" is now more of a priority than ever before, with procurement and pricing professionals playing increasingly significant roles within firms and a growing focus towards the measurement and analysis of profit, rather than simply its generation, becoming apparent. With this becoming common practice, it is now essential for those at the helm of their firm's profitability to take a deep dive into its real fundamentals.
The Future of Profitability Models and Analysis for Law Firms provides this kind of comprehensive exploration into the recent and revolutionary approaches firms are adopting in their pursuit of greater returns in this current period of renaissance for the law. Featuring contributions from field experts and thought leaders - including pricing directors, chief financial officers, and management consultants - combines trendspotting, exploratory intelligence with case studies and real-world examples of best practice to act as a launchpad for application and instruction.
Table of Contents
|About the authors||xi|
|Chapter 1: Write-downs, discounts, and that pesky red queen – finding profit by budgeting and monitoring matters||1|
|The (improbable) proposition||1|
|Why should I care?||3|
|Brief (scoffing) interlude||5|
|Why should I care? (continued)||5|
|Solution – a little bit can go a long way (just do something)||5|
|Chapter 2: Calculating profitability||9|
|Getting started – developing assumptions||10|
|Factoring compensation expenses||11|
|Developing cost rates||12|
|Refining the simple analysis||14|
|Allocating costs to revenue||15|
|Variables affecting realization||17|
|Developing a detailed revenue statement||18|
|Providing for the speed of billing and collection||20|
|Pulling it all together||20|
|Chapter 3: Measure of success – revenue is the ugly cousin of profi tability||23|
|Take a step back in order to make two steps forward||24|
|Nature versus nurture – it’s only nature if it wasn’t nurture||25|
|Chapter 4: Avoiding false profits – a guide||29|
|Do your dishes||29|
|Pricing for profit||33|
|Rewarding profit, not production||34|
|Building a profit culture||35|
|The future of profitability||36|
|Chapter 5: A roadmap to effective profitability reporting||39|
|A sample profit statement||40|
|Glossary of terms and calculations||42|
|How to use this information||44|
|Chapter 6: Tackling partner compensation||47|
|Why does it matter?||48|
|No partner direct costs||52|
|Chapter 7: In favor of a client- and product focusedprofitability analysis||65|
|Client and product profitability – developing a methodology||66|
|Client and product profitability analysis||70|
|Considerations for developing a profitability methodology for clients and products||71|
|Measurement period basis||72|
|Reconciliation of the profitability model to the general ledger||73|
|Cost rates (standard vs full)||75|
|Response to case study||78|
|Design of the profitability model||81|
|Chapter 8: Strategic approaches to improve firm financials||89|
|Matter approval process||89|
|Set goal metrics||89|
|The fee arrangement/discounting structure||91|
|Use successes as examples||93|
|Fire the client!||93|
|Chapter 9: Leveraging profitability for action and results||95|
Dwight Floyd is the chief pricing and value officer at Eversheds Sutherland (US) LLP. Dwight and his team work with Eversheds Sutherland attorneys and clients to provide superior value by developing and implementing creative pricing and service delivery strategies. Dwight is a former litigation partner and a biologist who brings a different approach to common challenges in the legal market. As in our natural ecosystem, he recognizes that everything in the legal ecosystem is connected to everything else. His challenge is discovering and revealing to attorneys and clients how those connections can benefit and sustain everyone involved while still conserving resources. Dwight is rated AV by Martindale-Hubbell and is an Accredited Legal Pricing Professional (ALPP) by the True Value Partnering Institute. He received his JD from the University of Virginia School of Law, his MS from Colorado State University, and his BS from Clemson University.
JAMES D COTTERMAN
James D Cotterman is a principal with Altman Weil, Inc. He advises law firms on compensation, capital structure, and other economic issues, governance, management, and law firm merger assessments. Before joining Altman Weil in 1988, Mr Cotterman was manager of acquisitions for a public company in the healthcare industry, where he developed, evaluated, negotiated and integrated merger opportunities. Mr Cotterman is the author of Cotterman on Compensation, a blog on lawyer compensation and law firm finance. He is the lead author of the ABA book Compensation Plans for Law Firms, and is a member of the Board of Editors of Accounting and Financial Planning for Law Firms. He has been the supervising author for Matthew Bender's looseleaf text How to Manage Your Law Office. His writings have appeared in The American Lawyer, The National Law Journal, ABA's Law Practice, International Law Firm Management and many other publications. Mr Cotterman is a frequent speaker and lecturer, including presentations for annual and regional conferences of the American Bar Association and the Association of Legal Administrators, as well as numerous state and local Bar and ALA meetings. He is a fellow of the College of Law Practice Management.
Eugenia Frenzel is the director of pricing and practice management economics at Perkins Coie LLP, focusing on forging and strengthening lasting client relationships through tailored pricing, effective matter management, and synergistic collaboration. She strives to deliver innovative business solutions to internal and external clients. With over 15 years of legal operations expertise at three AmLaw 50 firms, Eugenia is passionate about ensuring organizational strategic agility in today's fast paced and often volatile environment. Eugenia is an accredited legal pricing professional, a regular speaker at industry conferences, and a volunteer with ILTA. She is a licensed attorney and received her JD from Quinnipiac University School of Law; Eugenia received both her MS in Organizational Leadership and BS in Business from Mercy College.
TIMOTHY B CORCORAN
Timothy B Corcoran is a keynote speaker, consultant, author, and legal commentator. With deep experience spanning two decades as a corporate executive, he guides law firm and law department leaders through the profitable disruption of outdated business models. As a change agent, Tim's focus is on helping law firms operationalize their strategy, profiting from experience through project management and process improvement. Between customized talks and strategic collaborations with other industry experts, including the Legal Lean Sigma Institute and The Tilt Institute, Tim offers a full suite of advisory services. His accolades include serving as 2014 President of the Legal Marketing Association, a fellow and trustee at the College of Law Practice Management, committee chair of the Association of Legal Administrators, and sought-after speaker and writer on topics related to the changing business of law. Tim also authors the widely-read Corcoran's Business of Law blog.
PETER LANE SECOR
Peter Lane Secor is the director of strategic pricing and project management with Pepper Hamilton LLP. Mr. Secor concentrates on legal project management with a focus on improving efficiencies through shared management responsibilities, strengthening communication and making value transparent. His expertise includes client/matter profit analysis and providing partners with performance evaluations from a financial perspective.
Ron Paquette is the director of pricing at Akerman LLP, an Amlaw 100 firm with over 700 lawyers and professionals across 24 offices in the US. He has over 13 years of legal finance and client/matter profitability experience with prior roles as both a vendor/consultant and in-house at two other large law firms. His four years with Redwood Analytics were primarily spent focused on new analytic methodologies for the industry, exposing him to a wide array of approaches to client/matter profitability and their underlying strengths and weaknesses. He took this experience in-house, where he has implemented or improved profitability models in each firm. In his current role, Ron is rolling out profitability with the Akerman partnership while also implementing the required processes and disciplines for a robust and proactive pricing organization.
THOMAS W VAN DER MOERE
Thomas Van Der Moere is the chief financial officer at Neal, Gerber & Eisenberg LLP, a Chicago-based law firm with over 140 lawyers, where he oversees the financial operations of the firm including the areas of accounting, treasury management, planning/analytics/business intelligence, practice economics and strategic pricing, financial systems, and new business acceptance and risk management. Tom has expertise in professional service firm administrative and financial management, performance and compensation analysis, financial and operational analysis and modeling, strategic planning, process development and re-engineering, firm/project profitability and risk management, and business intelligence. He also has significant financial experience with public and private companies in professional services, energy, and manufacturing industries. Tom has an MBA from the University of Chicago Booth School of Business and an MS in Accounting and Business Management from the University of Tulsa.
Eddie Raychaudhuri has over a decade of experience launching and implementing pricing and LPM initiatives at law firms, which has incorporates process improvement, practice innovation, alternative staffing, client fee negotiations, establishing profit methodologies, and developing fee arrangements and monitoring fee deals. Eddie has a proven track record of working with practice groups to optimize practice platforms, business performance, client relationships, and operations to achieve increased profitability and reduce institutional risks while maximizing client value. Eddie earned his JD/MBA from Case Western Reserve University School of Law and American University's Kogod School of Business.
Madhav Srinivasan is the chief financial officer at Hunton Andrews Kurth LLP, leading the global finance and pricing competencies. Madhav is an ALM Intelligence Fellow and also an adjunct faculty at Columbia Law School in New York and University of Texas at Austin School of Law.
Jim Foley is the pricing and legal project management director at Hunton Andrews Kurth LLP, where he oversees the pricing, legal project management, matter analytics, business intake and conflicts areas. He has extensive experience in alternative fee arrangements (AFAs), legal project management (LPM), matter budgeting, law firm financial management, and financial analysis, and is a catalyst for change within the firm.