How to Generate Law Firm Revenue
The success of a small law firm hinges on the ability of its legal team to generate revenue. Without it, your business won’t grow, and you’ll find it challenging to increase its profitability. That said, knowing how to generate law firm revenue and tracking it is crucial to evaluating the performance of your business.
This article will tackle everything you need to know on generating law firm revenue. We’ll discuss the average earnings of a small law firm and the factors that affect it as well. After reading this post, you’ll have a better understanding of how to improve your law firm’s gross income.
What are the average earnings of a small law firm?
It’s hard to quantify the average revenue of a small law firm because each business is unique. Not every law firm offers the same services, and their client base will be different as well. To get an idea of how much a small law firm makes, it helps to know the average earnings of solo practitioners.
The 2020 Martindale-Avvo Attorney Compensation Report indicates that a solo practitioner makes $150,000 annually. In that same report, lawyers who worked at a small law firm earned around $210,000 on average. This suggests that the average revenue generated by a small law firm is higher than the reported figures. But to get a better idea of a small law firm’s average revenue, we need to factor in things like the location of the practice, the pricing model it uses, the clients they serve.
Let’s cover the determining factors down below:
- Location – The location of the law firm plays a role in how much revenue it can generate. If the practice is located in an area with a high cost of living, lawyers can charge higher rates than those in lower-cost cities.
- Clients – A law firm’s client base will have a direct impact on its annual earnings. For example, law firms that cater to consumers tend to generate lower revenue than those that serve small to medium-sized businesses. Some firms cater to both audiences which raises their earning potential even more.
- Pricing model – The vast majority of lawyers use an hourly rate to charge for their services. While it’s the most common pricing model used, it’s not the most profitable method out there. Lawyers who charge a flat rate earn more because of its scalability.
A combination of these three factors will heavily influence a law firm’s ability to generate revenue. But that’s not to say you’re limited with your earnings as there are ways to become more profitable.
Tips on generating revenue for small law firms
There are plenty of ways you can generate revenue for your business. It’s all about implementing the right strategies to ensure your law firm’s profitability is as high as possible. Follow these value-based tips to generate more revenue.
1. Use technology to automate non-billable tasks
As a lawyer, your goal should be to focus on billable tasks to generate revenue for your law firm. This helps you maximize the earning potential of your business and take advantage of the opportunities presented to you. If you’re spending countless hours on non-billable tasks, then you need to use automation tools to get them sorted.
Administrative work like timekeeping and practice management consume way too many valuable resources for you to spend time on. Thankfully, you can find plenty of practice management tools online that’ll free up your schedule and allow you to work meaningful hours.
2. Set clear, meaningful goals
Goal setting is important for any law firm as these are the driving force of your hard work. You want to be as clear and concise with your goals as possible so that you can proceed with strategic intentions. Your goals should be measurable, time-oriented, and relevant if you wish to generate revenue for your law firm.
When you set meaningful goals, you hold yourself and your legal team accountable. You get to focus on the bigger picture and concentrate your efforts on tangible results. Of course, you need to know whether you’re making progress or not, and this can be done by tracking the right metrics.
3. Measure your progress using key metrics
Assuming your efforts are working is a counter-productive way to generate revenue for your law firm. You have to make sure you’re making progress, so keep an eye on key performance indicators (KPIs) to see results.
When you have reliable data in your hands, you can make informed decisions. For example, you track how many people have visited your website to see if your content marketing strategies are working. There are other important KPIs to track when looking at your law firm’s profitability, and these are your collection rate, realization rate, and utilization rate.
Like they always say, what gets measured gets done. Improve your results by tracking key performance indicators regularly. From there, you can make data-driven choices that will help sustain the growth of your law firm.
4. Keep track of non-billable hours
We can’t stress this enough. Unbilled hours have a massive impact on your law firm’s ability to generate revenue. You want to limit the non-billable hours that you work on each day. To do this, you can download legal time tracking software so that you can monitor your billable hours and limit your non-billable workload. When you record your working hours in real-time, it allows you to evaluate your day-to-day tasks.
Not only will this improve your productivity levels, but it will also ensure your rates are profitable regardless of the pricing model you use.
5. Use the right pricing model
Speaking of pricing models, you must use the correct one for any given situation. Working in a small law firm gives you the flexibility to switch things up by charging your clients a flat rate, a subscription fee, or a sliding fee depending on the circumstances.
Sticking to an hourly rate limits your earning potential as you’re working with the constraints of your schedule. By exploring other pricing models, you get to land more competitive rates and scale up your law firm’s services.
6. Streamline your collections
After completing the work, you want to make sure that you’re not leaving any revenue off the table. A 2020 Legal Trends Report reveals that 14% of the hours that attorneys bill to clients ends up getting unpaid. That’s a lot of hours spending time on just collecting payments. If you want to increase the profitability of your law firm, you need to streamline your collections.
This can be achieved by informing your clients of your billing policy and including a standard procedure for uncollected payments. Make sure your clients know when the bills will be invoiced, the payment options available, and the consequences of making late payments.
7. Simplify your payment options
Part of streamlining your collections is to make it easier for your clients to make payments. Convenience is a major factor in a client’s ability to pay on time, so ideally you should set up multiple payment options. Timely payments equate to more revenue for your law firm. So how do you go about doing this? By setting up online payments and accepting credit cards.
The legal industry was slow to adopt electronic payments due to ethical concerns, but thanks to increasing client demand, around 53% of law firms are now equipped to accept e-payments. When you simplify your payment options, you help improve the client’s experience which in turn brings a positive image to your law firm.
8. Provide client-centric services
Your client base is your law firm’s primary source of revenue. If you want your business to become profitable, then you need to cater to their needs and expectations. One of the best ways to generate revenue is to provide a positive experience to your clients. This means providing high-quality legal work and establishing strong client relationships right from the start.
Asking for client feedback is great for improving the level of service that you provide. Take note of their suggestions and prioritize their satisfaction rate. When you take care of your clients, they will take care of you. Part of doing good business is satisfying your consumers, and when you provide client-centric services, it opens up a whole host of opportunities for your law firm.
Generating revenue is crucial to the success of your law firm. While there are no specific averages a small law firm makes, you can increase the profitability of your business by taking strategic steps. The growth of your business lies in your ability to adapt to changing situations and putting your law firm in the best position to grow financially.
Consider the value-based tips we’ve mentioned in this article and apply them to your law firm to improve your law firm’s revenue and set your business up for future success.
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