Managing a law firm requires more than overseeing cases and delegating tasks—it demands a strategic approach that balances client expectations, regulatory compliance, and operational efficiency. Clients seek timely, high-quality legal services with clear communication, while attorneys and law firm administrators navigate evolving regulations, intricate trust accounting rules, and stringent data security requirements.

To remain competitive, firms must foster a culture where every team member aligns with organizational goals, follows well-defined processes, and leverages technology to streamline workflows. This law firm management guide examines key strategies and tools that drive efficiency, enhance client satisfaction, and support sustainable growth. It also highlights the best practices forward-thinking firms use to stay ahead in a constantly evolving legal industry.

Main Takeaways From This Guide:

• Law firms must adopt structured, tech-driven strategies to handle rising client expectations, regulatory complexities, and time-consuming administrative tasks.
• Inefficiencies in administration, balancing billable vs. non-billable tasks, compliance threats, and trust accounting pitfalls can hinder a firm's profitability and service quality.
• Implementing best practices like documenting workflows, creating a solid business plan, prioritizing work-life balance, and ensuring cybersecurity can enhance client satisfaction and support sustainable growth.
• Modern legal tech helps centralize information, automate routine tasks, and foster collaboration among attorneys and staff.

What Is Law Firm Management?

Law firm management refers to administrating and overseeing all aspects of running a legal practice. This includes financial management, client communication, human resources, compliance, marketing, and technology integration. While attorneys focus on providing legal counsel and representing clients, the management framework ensures that each practice element operates cohesively to support those legal services.

Why Is Law Firm Management Necessary?

In the past, many law firms handled management tasks in a fragmented way, relying on manual processes and ad-hoc decisions. However, the modern legal landscape has evolved significantly. Now, growing client demands, intensified competition, and expanding regulatory requirements have pushed firms to adopt more structured and technology-driven approaches.

In larger firms, dedicated legal administrators or office managers focus on managing these operational areas. In smaller firms, these responsibilities often fall on the managing partners or a single administrator wearing multiple hats. Regardless of the firm’s size, effective management is essential to maintaining professionalism, reducing errors, and enhancing profitability and client satisfaction. 

Common Challenges Law Firms Face

Modern law firms face many challenges that affect their bottom line, client relationships, and team morale. These challenges are often related to:

Administrative Inefficiencies

Handling administrative tasks is a common pain point in many firms, which requires substantial time and resources that could otherwise be used for client-facing legal work. From scheduling to document filing and billing, these tasks become unwieldy if they are not standardized with the right technology. 

When there is no clear workflow or unified platform, staff may lose track of deadlines, duplicate efforts, or generate inaccuracies in record-keeping. These inefficiencies can lead to billing disputes, compliance risks, and dissatisfaction among staff and clients. Plus, frequent interruptions like drop-in clients, emails, and ad-hoc tasks can disrupt the productivity of staff members. Without a system that centralizes these processes, confusion and avoidable errors compound over time. 

Managing Billable Hours vs. Non-Billable Tasks

Your firm’s timekeepers need to balance time devoted to revenue-generating tasks and the non-billable responsibilities necessary to keep the firm running smoothly. Overemphasis on administrative work or internal meetings can directly reduce the billable hours that are crucial for the firm’s profitability. 

On the other hand, your clients are likely demanding more transparent and predictable billing structures, which places pressure on the firm to ensure it can efficiently track and justify its billable time. Firms that do not adopt clear strategies for time capture, matter budgeting, and delegation may find themselves caught in a dilemma between pleasing clients, staying profitable, and avoiding burnout.

Client Communication and Satisfaction

Managing multiple client matters simultaneously requires establishing effective communication channels, using structured feedback loops, and sharing real-time updates. Inconsistent or delayed communication can erode clients’ trust and confidence, as they want assurance that their attorneys are both accessible and transparent about the status of their case or transaction. 

It’s important to note that effective communication is not limited to email or phone calls. It often involves secure client portals where documents can be shared and confidential conversations can take place. If a firm lacks a streamlined system for updates, reporting, and collaboration, clients may feel neglected or uninformed.

Compliance and Security

Law firms have a huge responsibility to handle client data with care that obliges them to adhere to strict ethical rules, maintain confidentiality, and ensure compliance with various data protection laws. Any data breach or mishandling of client funds can result in severe reputational damage and legal repercussions. 

Compliance with regulations like the General Data Protection Regulation (GDPR), HIPAA (in healthcare-related matters), or local bar association requirements often demands meticulous record-keeping and secure communication methods. Without well-planned policies and training, even small oversights can pose significant risks.

Trust Accounting Complexities

Trust accounting is a critical part of law firm financial management that involves carefully handling client funds. Laws strictly define how these funds must be separated from the firm’s operating accounts and how each transaction should be recorded and reported. Failure to adhere to these rules can lead to ethics violations, loss of licensure, and legal consequences.

Many smaller firms struggle with trust accounting because it requires detailed tracking of deposits and withdrawals, reconciliation of trust ledgers, and timely reporting. Without the right trust management tools, mistakes in accounting are more likely to occur.

13 Best Practices for Modern Law Firm Management

To address these common challenges your law firm faces, you’ll need to be agile, client-centric, and data-driven. Here are some critical best practices to improve all aspects of your legal practice and unlock sustainable growth.

1. Establish Clear Operational Workflows and Procedures

Efficient operations rely on well-structured workflows. Document each step of essential processes like client intake, conflict checks, matter setup, and billing cycles. Establishing defined procedures ensures that every team member understands their responsibilities, the timing of each task, and how work transitions between roles seamlessly.

Standardizing these processes also makes it easier to spot inefficiencies and automate portions of the workflow. For example, you can use practice management software to automatically update calendars, send reminders, or generate documents based on predefined templates. This can reduce the risk of errors and cut down on the administrative burden that commonly accompanies repetitive tasks.

2. Develop a Strong Onboarding Process for Clients and Staff

Onboarding sets the tone for a healthy, productive relationship—whether with a new client or a new team member. For clients, this involves a structured intake procedure: 

• Gathering essential documentation
• Clarifying billing expectations
• Establishing communication protocols

For new staff, a well-organized onboarding plan ensures they understand the firm’s core values, workflows, and performance metrics from day one. Provide staff with training resources, assign a mentor, and schedule regular check-ins to ensure they are adjusting well. 

If you want low turnover rates, implement an effective onboarding process. Confident employees are happy employees, and happy employees stay with the company. Both client and staff onboarding can benefit from technology-driven solutions like online portals, automated checklists, and e-signature tools.

3. Create a Law Firm Business Plan

A business plan is not just for startups; it is a living document that defines your firm’s objectives, target market, pricing strategy, and growth trajectory. 

Your plan might include a detailed breakdown of practice areas, ideal client profiles, projected billable hours, and revenue goals. Setting clear, measurable goals helps guide decision-making and track performance effectively. 

It should also address operational considerations such as resource allocation, staffing, and technology investments. By revisiting and adjusting this plan annually (or even quarterly), you ensure that the firm remains focused, agile, and aligned with industry trends. A well-researched business plan helps you expand into new practice areas or geographic markets through strategic marketing efforts, firm budgeting, and team building.

4. Implement Law Firm Marketing and Client Acquisition

In a saturated legal market, simply counting on referrals or walk-ins is not enough. Your firm needs a cohesive marketing strategy that includes search engine optimization (SEO), social media presence, email campaigns, and in-person networking. Marketing should highlight your firm’s unique value proposition, emphasizing specializations or differentiators, such as innovative fee structures or exceptional customer service. 

Many firms find success with content marketing—publishing articles, guides, and thought leadership pieces on their websites. This helps potential clients find you online and establishes your attorneys as experts in their respective fields. Paid advertising, like Google Ads, can also be effective, but it must be carefully monitored to ensure a positive return on investment. Once leads come in, have a systematic intake process to quickly respond, gather information, and schedule consultations.

5. Leverage Automation to Eliminate Repetitive Tasks

Adopting automated solutions, particularly in areas that involve large volumes of repetitive work, such as document generation, calendaring, and invoice creation, signifies moving with the times to stay competitive. By incorporating technology solutions that handle these tasks, attorneys and other legal staff can focus on higher-value activities such as legal research, strategy, and client interaction.

It's worth noting that automation does not imply replacing human expertise. Instead, it frees professionals to use their time more effectively to create more personalized client experiences. For instance, automated document drafting can drastically reduce the time spent creating standard contracts, motions, or client letters. Integrations with e-signature tools can further simplify the process, ensuring faster turnaround times.

When implementing automation, conduct process audits to identify the tasks that consume the most time and have the highest potential for errors. Begin by automating those tasks first and monitor performance metrics to measure improvements.

6. Employ Client-Centered Communication Strategies

No matter the size of a case, your firm’s ability to communicate effectively and proactively with clients is key to your success. Client-centered communication prioritizes client needs in all interactions and involves promptly returning calls, providing easy-to-understand updates, and ensuring that clients have access to case information through a secure online portal.

Use multiple communication channels (email, phone, portal messages, or in-person meetings) to cater to different client preferences and keep every interaction transparent. Whether you’re sharing good news or bad, promptly informing clients about developments deepens trust. Also, provide regular invoices or statements so clients understand how their funds are being used. The more convenient and reassuring you make the communication process, the more likely you are to gain loyal, long-term clients.

7. Prioritize Collaboration With Legal Tech

Modern law firms cannot remain competitive without leveraging technology. Collaboration tools allow attorneys, paralegals, and support staff to work together on documents, track deadlines, and manage tasks in real-time. Cloud-based platforms ensure that team members can access necessary documents and data from anywhere, which prevents bottlenecks.

In practice, effective collaboration might involve using a unified platform for matter management, where calendar events, billing records, and client communication are logged in a single location. This centralization reduces the need for back-and-forth emails and ensures that everyone has the most up-to-date information.

8. Establish Clear KPIs for Performance Tracking

Key performance indicators (KPIs) are metrics that help measure progress against your firm’s goals. For instance, you might track the number of new matters opened each month, average collection rates, utilization rates (billable hours vs. total hours), or client satisfaction scores. Regularly reviewing these KPIs can help you spot issues and make informed decisions about where to invest time and resources.

Additionally, publicizing relevant KPIs in the firm can create a culture of accountability and keep everyone motivated. When staff understand exactly how their performance is measured, they are more likely to focus on the activities that drive the best results. KPIs should cover both financial and non-financial measures, recognizing that client satisfaction, team development, and compliance are equally crucial aspects of a thriving practice.

9. Provide Flexible Payment Options for Client Satisfaction

Clients often choose a law firm based on how comfortable they feel with billing arrangements. Traditional hourly rates are still common, but alternative fee structures, like flat fees, contingency, or blended billing, may suit different types of matters or client preferences. Offering multiple payment options demonstrates that your firm is client-focused, which can attract a higher number of clients.

Consider providing payment plans or secure online payment portals to simplify transactions. Many clients appreciate the ability to pay invoices using credit cards or digital payment methods. When these processes are streamlined and transparent, it reduces billing disputes and improves cash flow.

10. Strengthen Retention and Growth Strategies

Retaining existing clients and cross-selling additional services can often be more cost-effective than continuous new-client acquisition. Building strong relationships by consistently delivering quality work, staying in touch, and understanding evolving client needs enhances client loyalty.

Implement a client feedback loop to regularly gauge client satisfaction and address concerns before they escalate into major issues. You may also consider establishing a referral network by nurturing relationships with other professionals like accountants, financial advisors, or consultants, who can recommend your firm to their clients. 

11. Prioritize Work-Life Balance to Reduce Burnout

The legal profession is stressful by nature, with overwhelming workloads, tight deadlines, and high-stakes cases. If left unmanaged, this stress can easily lead to burnout, high turnover, and reduced quality of service. Promoting a healthy work-life balance through flexible work schedules, mental health resources, and reasonable work hours can help maintain staff well-being and high morale.

You must lead by example, though—partners and senior attorneys who demonstrate a commitment to personal time and well-being signal that the firm truly values balance. Encourage team members to take breaks, use their vacation time, and participate in wellness programs.

12. Enhance Cybersecurity and Data Protection

As more legal work transitions to digital platforms, cybersecurity concerns will intensify. From phishing attacks to ransomware, law firms are prime targets due to the sensitive nature of client information. Invest in secure hardware and software to mitigate these risks, adopt strong password policies, and educate staff on identifying and handling potential threats.

Encryption is essential for confidential communications, whether via email or within a client portal. Regularly back up your data, preferably off site or in the cloud, and implement a solid disaster recovery plan. If a cyber incident occurs, respond swiftly and transparently in compliance with applicable regulations.

13. Foster a Culture of Continuous Improvement and Training

A culture of continuous improvement encourages every team member to seek out new techniques, technologies, and strategies for delivering better services–which ultimately helps your firm keep pace with the constantly evolving legal landscape and client expectations.

Offer ongoing training in areas like new legislation, emerging practice areas, technology skills, and client relationship management. Solicit feedback from your team on existing processes and tools. This bottom-up approach often reveals insights that leadership might overlook. Celebrate incremental gains and measure the impact of process changes to build momentum.

Key Tools for Efficient Law Office Management

Implementing law firm management best practices requires modern law firms to rely on several different technological tools to keep their operations running smoothly and improve team productivity. Here are some of these essential tools to consider incorporating into your firm.

Matter Management Software

A matter management system centralizes all information related to a case or client matter, including deadlines, documents, billing, and correspondence. It provides a single source of truth for everyone in the firm, minimizing confusion and lost information. Advanced platforms offer automation features, analytics dashboards, and integrations with other software tools for added efficiency.

Document Management System

A centralized document management system (DMS) stores, organizes, and secures a firm’s legal documents. It enables quick search and retrieval, version control, and permission-based access. By digitizing files, a DMS reduces reliance on physical storage, cuts down on printing costs, and streamlines collaboration. It is crucial for preventing compliance issues in industries with strict data retention and privacy regulations.

Legal Billing and Accounting Software

Legal billing software streamlines the process of time tracking, generating invoices, and managing payments. Integrations with accounting systems can automate trust accounting tasks, expense reimbursements, and reconciliations. Transparent and efficient billing procedures reduce internal administrative loads and help maintain clarity with clients regarding costs and payments.

Client Relationship Management (CRM) Software

A CRM system helps track and manage interactions with both current and prospective clients. It can store contact details, log email conversations, and track leads through various stages of engagement. Firms use CRMs to analyze lead sources, refine marketing strategies, and build stronger, more personalized client relationships.

Task and Workflow Automation

Automation tools can handle a range of tasks, from updating client records to generating routine legal documents. They often integrate with matter management systems, automatically scheduling tasks based on triggers such as new client intake or a court date. By handling repetitive or administrative work, these tools free up time for attorneys and staff to focus on more strategic and billable tasks.

Secure Client Portal

A secure client portal is an online platform where clients can access documents, track the progress of their matters, and communicate with their legal team. This enhances transparency and convenience for clients, allowing them to stay informed without constant phone or email updates. For the firm, a client portal reduces the need to send large attachments via email and provides a record of communication.

Marketing and Website Management Tool

Because online visibility is so critical, having a platform to manage your firm’s website, blog, and social media accounts is invaluable. These tools often come with analytics features that show how visitors engage with your content, allowing you to refine your marketing strategy over time. Consistent, high-quality content can position your firm as a trusted authority in specific practice areas, attracting more targeted leads.

Should You Hire a Law Office Manager?

Hiring a dedicated law office manager ensures that operational tasks and administrative functions receive the attention they deserve. While many smaller firms distribute these responsibilities among partners or staff, a specialized manager brings professional expertise in areas like finance, human resources, compliance, and technology adoption.

Before making this decision, evaluate your firm’s size, budget, and organizational structure. If you and your partners are overwhelmed by non-billable tasks, or if the firm’s operations are too complex for ad-hoc management, it may be time to bring in a professional manager. They will be able to coordinate procedures, oversee staffing, handle vendor relationships, and measure the impact of operational changes, all of which can lead to improved efficiency, profitability, and workplace morale.

Streamline Legal Practice Management With Centerbase

Centerbase provides a powerful, all-in-one platform tailored to the legal industry for firms seeking to unify these best practices in one robust solution. From matter management and workflow automation to billing, accounting, and secure client communications, the platform simplifies each aspect of law firm operations.

With a legal firm management platform like Centerbase, you can:

✅ Streamline Matter Management

• Store all case-related information in one place for easy access.
• Track deadlines and monitor case progress through intuitive dashboards.

✅ Automate Workflows and Boost Productivity

• Configure custom workflows to standardize processes and implement automated deadline tracking.
• Promote firm-wide collaboration through document management, real-time updates, and integrated messaging.

✅ Simplify Billing, Accounting, and Trust Management

• Integrate billing, accounting, and trust management into a single platform and use ePre-bill approval, automated trust replenishments, and online payments.
• Ensure compliance with trust accounting regulations while maintaining real-time financial visibility.

✅ Enhance Client Experience

• Provide a secure client portal for easy document sharing and case updates.
• Improve client convenience with online payment options and automated time capture for accurate billing.

Ready to enhance operational efficiency, improve client satisfaction, and cultivate a more productive environment? Get a free demo today!

FAQs

Does a Small Law Firm Need Law Practice Management Software?

Yes, even small law firms can benefit from legal practice management software. It can improve organization, streamline workflows, and enhance client communication, regardless of firm size.

How Does a Typical Law Firm Structure Operate?

Law firms generally operate with a hierarchy that includes equity partners, associates, paralegals, and administrative staff. Equity partners oversee firm-wide decisions and share in the profits, while associates are salaried attorneys working toward partnership or a long-term role. Paralegals and support staff manage research, document drafting, and administrative responsibilities that do not require a licensed attorney.

What Does a Manager of a Law Firm Do?

A law firm manager oversees the administrative and operational aspects of the firm, including managing staff, finances, technology, and facilities. They ensure the smooth functioning of the firm and support the attorneys in delivering legal services.

By Debbie Foster, CEO, Affinity Consulting Group 

Moving Beyond Billable Hours 

Law firm profitability is often viewed in simplistic terms: the more billable hours attorneys log, the more profitable the firm becomes. But the reality of assessing profitability is far more nuanced. Profitability can be sliced and diced in several ways — by practice area, client, lawyer, and matter profitability, and more — and your firm has to determine what’s appropriate to analyze. 

That can get complicated, but my goal with this article is to help make profitability analysis feel doable by looking at just one example — practice area profitability. We’ll look at how you can use practice area information to make strategic decisions about resource allocation, maximizing your profit margins, and maintaining a healthy work environment for your attorneys and staff. 

Understand Attorney Cost Rates to Set a Profitability Foundation 

Before we can begin analyzing profitability by practice area, we must understand what it costs your firm to provide its services by determining each attorney’s cost rate. 

This is essentially the hourly cost of employing them, including salary, benefits, and overhead expenses such as office space and technology. This rate forms the foundation for assessing whether your firm is pricing its services appropriately and whether each attorney is contributing to overall profitability. 

Calculating attorney cost rates involves several components: 

• Base salary and benefits: The most straightforward cost is the attorney's salary, along with additional benefits like health insurance and retirement contributions. 

• Overhead allocation: Overhead includes office space, administrative support, technology costs, and other general expenses. Allocating these expenses to each attorney is essential for a true understanding of their cost. 

• Practice group specifics: Different practice groups may require varying levels of support or incur different costs. For example, a litigation group may need additional paralegal support compared to a transactional group, affecting the cost rate of attorneys in that practice area. 
  

Calculate the cost rate for each attorney by adding their salary and benefits to their share of overhead expenses. This will give you a baseline cost per hour for each attorney, which can then be compared to their billing rate to determine their contribution to profitability. 

Practice Area Profitability: Analyzing Where the Firm Thrives 

Now that you’ve established attorney cost rates, you're ready to analyze profitability by practice area. This is often a relevant category to assess within a firm because it can reveal valuable insights that might not be apparent from a high-level overview of your firm's financials.  

For example, a firm may appear profitable overall but harbor unprofitable practice areas that are being subsidized by more successful ones. This situation can lead to resentment among partners and potentially affect staff retention.   

Not all practice areas are created equal — some may generate substantial revenue but come with high costs, while others may be highly efficient profit centers. 

You can understand practice area profitability at both a high level and a granular level. By breaking down profitability by practice area, firms can identify which areas are driving the most profit and which may be underperforming. Here are some guidelines to approach this analysis: 

• Revenue vs. costs: Start by calculating the total revenue generated by each practice area. Then, subtract the costs associated with that practice area, including attorney cost rates, paralegal support, and other direct expenses. This will give you a clearer picture of each practice area’s profitability. 

• Attorney utilization: Consider the utilization rates of attorneys within each practice area. Are higher-cost attorneys working on lower-value matters? If so, reassigning that work to lower-cost associates could improve profitability. 

• Market rates and adjustments: The cost rate analysis also helps determine if the billing rates for specific practice areas are appropriate. If a practice area isn’t profitable, you can explore adjusting the rates or targeting different types of clients. 

You want to regularly assess the profitability of each practice area by tracking revenue, costs, and utilization rates. Adjust resource allocation to ensure the right attorneys are working on the right matters to maximize profitability. 

Leverage and the Concept of 'Highest and Best Use' 

Another crucial factor that impacts profitability is how work is allocated across the firm. The concept of “highest and best use” can help ensure that the right person is doing the right work at the right time. This is particularly important for maximizing profitability in practice areas with mixed levels of complexity. 

• Partner vs. associate work: Partners typically have higher billing rates but also higher cost rates. Ensuring that partners focus on strategic, high-value tasks while associates handle routine work can help improve profit margins. The key is to avoid having high-cost attorneys working on tasks that can be done just as effectively by lower-cost attorneys. 

• Utilizing technology and support staff: Law firms should also leverage technology and support staff to handle tasks that don’t require an attorney’s expertise. Choose law practice management software for time tracking, document management, and other administrative functions to reduce the amount of time attorneys spend on non-billable activities to further enhance profitability. 

Conduct regular reviews of workload distribution to ensure that partners, associates, and support staff are all working at their highest and best use. This will help optimize profitability while maintaining a balanced workload across the firm. 

Benchmarking and Profitability Tracking 

Benchmarking plays an important role in understanding whether your firm is performing as well as it should be. You can benchmark against both internal and external standards to identify areas for improvement and set realistic goals for growth. 

• Internal benchmarking: Compare the profitability of different practice areas, clients, and attorneys within your firm. Identify which areas are excelling and which need improvement. Then, use these insights to guide strategic decisions. 

• External benchmarking: Look at industry benchmarks for profitability, revenue per attorney, and other key performance indicators. This will help you understand where your firm stands compared to your peers and identify opportunities to enhance profitability. 

Use benchmarking data to set performance targets for practice areas and individual attorneys. This will help create accountability and ensure that everyone in the firm is aligned with profitability goals. 

Turn Insights into Action 

Maximizing profitability requires moving beyond increasing billable hours to taking a holistic approach. This should include understanding attorney cost rates first, and then analyzing a category that makes sense for your firm, such as practice area performance. With this combined cost rate at practice area data, you can begin allocating resources strategically — all to identify hidden opportunities for growth, make data-driven decisions, and ensure long-term profitability for the firm. 

Why Profitability Matters for Law Firms 

Profitability is one of the most critical measures of success for any law firm. But while it’s easy to fall into the mindset of “more billable hours equal more profit,” the reality is more complex. Simply focusing on the standard math equation of revenue minus expenses equals profitability doesn’t always tell the full story of a firm’s financial health. 

In a recent webinar, “The Next Generation of Law Firm Profitability,” Debbie Foster, CEO of Affinity Consulting, and Paige Roncke, Chief Revenue Officer at Centerbase, explored the essential components of law firm profitability, moving beyond the basic math to consider how different practice areas, lawyer cost and billing rates, client profitability, revenue generation, and cost management play a crucial role. 

How Do Law Firms Calculate Profitability? 

At a foundational level, profitability is calculated as revenue minus expenses. It's a straightforward equation, but there are multiple factors influencing law firms’ revenue and expenses.  

“While the simple math for profitability is accurate,” Debbie says, “in law firms, we need to look beyond what the profitability number is to what the profitability number could be in order to maximize what is left.” 

To do this, you can define your firm’s profitability inputs by considering:  

• What do we want the end profit to be? 
• What comprises our law firm’s profitability? This could include: Practice area profitability, lawyer profitability, client profitability, and matter profitability.
• How can we use technology to help us track our firm’s profitability? 

“There are many ways to look at profitability, so you have to double down and figure out what combination of these inputs makes sense for your firm, and how will you track it,” Debbie suggests. 

Let’s take a look at where to start. 

The 5 Key Drivers of Law Firm Profitability 

To move beyond the basic profitability equation, analyze the underlying factors that influence both revenue and expenses at your firm. By doing so, you can identify opportunities to maximize profits and make data-driven decisions. Here are five key areas to assess in your firm. 

1. Lawyer Cost Structure and Billable Rates 

Each lawyer in a firm has a different billing rate and cost structure. Partners might bill at a higher rate, but they come with higher compensation. Associates, on the other hand, may have lower billing rates but can be profit centers if their work is leveraged effectively. 

Take the time to figure out each of your lawyer’s cost rate — what it costs them to provide their services — factoring in their salary, benefits, office space costs, and technology costs. By calculating this cost, you can determine the minimum amount each lawyer needs to bill to cover their expenses and contribute to the firm's profitability. 

Example of a lawyer cost rate calculation

1. Start with the lawyer's annual salary — for easy math, we’ll use $120,000. 
2. Calculate the monthly salary: $120,000 / 12 = $10,000 
3. Factor in billable hours. Divide the monthly salary by the lawyer’s expected monthly billable hours to get an hourly rate: $10,000 / 100 billable hours = $100 per hour 
4. Add benefits and overhead. Factor in the cost of benefits per hour (e.g., $30/hour) and overhead per hour (e.g., $70/hour) to get the lawyer’s hourly cost rate: $100 per hour + $30 hourly benefits + $70 hourly overhead = $200 hourly cost rate           

Actionable insight: Now that you know how much it costs for this lawyer to provide their services, you can better determine a billable rate that will enable profitability. Follow this method to calculate the hourly cost rate for each lawyer and compare it to their hourly billing rate. If a lawyer’s cost rate is higher than their billing rate, this could indicate a profitability problem. Ensure that work is assigned based on each lawyer's cost-effectiveness, balancing their rates with the profitability of the cases they handle.  

2. Practice Area Profitability 

Not all practice areas are equally profitable. Some might generate higher revenue but come with greater expenses, while others may be less lucrative but require fewer resources. For example, family law cases might involve more administrative work, while corporate law could bring in larger retainers but demand more expensive expertise. 

Actionable Insight: Start by analyzing each practice area’s cost rate to determine its profitability. Track the hours billed, expenses incurred, and the average rate charged. By understanding which areas are most profitable, you can make strategic decisions about where to focus your resources and who to leverage in your firm for different types of work. 

“Understanding cost structure gives insight into appropriate billing rates for attorneys within a practice group,” Paige says. “With this information, you can balance the practice area’s work, having attorneys with a lower cost rate handle work that doesn’t require a senior partner’s expertise, which starts to help you adjust your profitability for that practice area.”  

3. Client Profitability 

Not all clients are created equal in terms of profitability. Some may require more time, resources, and attention, while others are more straightforward and generate higher profit margins. By understanding which clients contribute most to the firm's profitability, you can make more informed decisions about where to invest your time and effort. 

Actionable Insight: Regularly review client profitability by tracking the time spent on each client’s matters and the revenue they generate. This will help identify high-maintenance clients who consume resources without delivering commensurate revenue, enabling the firm to renegotiate terms or focus on more profitable clients. 

4. Revenue Generation 

Maximizing revenue might seem like a straightforward goal, but the practical aspects of capturing all billable time, diligently following up on leads, minimizing write-offs, and optimizing accounts receivable collections often fall by the wayside. It's common to underestimate the significance of these seemingly mundane yet critical tasks that can make or break your firm's profitability. 

Actionable Insight: Maximizing these revenue-generating tasks comes down to having the processes and tools in place to set your firm up for success. Paige sums up four actionable areas to optimize your firm’s revenue. 

• Following up with leads. Implement a process for following up with leads efficiently to turn them into clients. “Following up with leads is your first chance to generate revenue for the firm,” Paige notes. 
• Time tracking. Implement time-tracking technology to ensure all billable hours are captured. “Whether it's texts, phone calls, emails, meetings — you want to capture every moment of time worked for a client,” Paige says. “Even small increments of missed time can add up significantly over the year, impacting overall profitability.”  
• Pre-bill review process. How much time gets written off at the pre-bill stage because of your perception of the client's willingness to pay? Establish clear billing policies to minimize these pre-bill write-offs. 
• Accounts receivable process. Enforce a structured accounts receivable process for efficient collection. Paige notes, “When you send an invoice, it doesn't stop there. There's negotiation that happens, and it changes per client. You want a policy in place, so you don't get stuck in the 90-day mark writing off outstanding bills.” 

5.Cost Management 

Law firms have three main expense categories — personnel, office space, and technology — and managing these costs is another important factor in a firm’s profitability. However, it’s not necessarily about minimizing expenses, but rather optimizing what you spend.  

“It’s important to not waste money,” Debbie says, “and you do that by making sure you’re leveraging what you buy. You need to think about people planning, space planning, and technology planning to utilize them all effectively.”  

Actionable insight: Using technology as an example, if you invest in cloud-based software but don’t review the updates and learn about new features regularly, then you’re not leveraging the software — or your money — to its full capacity. Similarly, when you hire new staff members but provide little training on the firm’s processes, technology, and culture, you’re not optimizing personnel or technology, and you’re risking additional expenses through attrition if staff members become disengaged to the point of resigning. 

Law Firm Profitability is About More Than Just the Bottom Line 

Understanding profitability isn’t just about looking at the revenue minus expenses equation. It’s about going beyond basic math and exploring how you can optimize each component of your business. By focusing on core drivers of profitability — cost and billing structure, practice area profitability, client profitability, revenue generation, and cost management — your firm can uncover opportunities for long-term growth and profitability. 

Stay tuned for our next article, which will focus on the impact of technology and how to leverage it for law firm profitability. 

Basic reporting functionality isn’t enough to help law firms unlock the full potential of their data. Today’s law firms need robust reporting tools that help law firm leaders extract actionable insights, optimize resource allocation, and enhance overall performance. And they need tools that align with their strategic priorities and operational requirements.

Six reporting capabilities can optimize your firm’s efficiency, profitability, and strategic decision-making.

1. Target new opportunities for profit

Typically, law firm reporting software allows users to generate reports to track billable hours, expenses, and invoices. Standard reports may include details such as client billing summaries, unbilled time and expenses, and aging invoice analysis. But these basic reports aren’t enough to help law firms stay competitive in a crowded market.

Law firms need deeper insights. Only a handful of legal software solutions offer profitability reporting, and it’s a game-changer for firms. By analyzing profitability metrics at the timekeeper, practice area, location, and matter levels, law firms can pinpoint areas of strength and weakness, allocate resources effectively, and optimize performance. Prioritizing profitability reporting enables firms to focus on revenue-generating activities and enhance their overall financial health.

2. Visualize data to match the way you work

Law firm reporting software usually includes basic elements such as charts, graphs, and tables that present data in a visual format. These tools give users a snapshot of metrics and trends, helping them make more informed decisions.

But leading reporting platforms allow users to visualize information in multiple ways, with customizable dashboards that allow users to transform raw data into actionable insights. Interactive dashboards offer dynamic visualizations of key performance indicators. Top platforms empower users to create personalized dashboards so they can monitor real-time data, track trends, and gain actionable insights at a glance. The interactive nature of top platforms’ dashboards allows users to drill down into the data for deeper analysis and exploration.

3. Drill down into data with out-of-the-box templates

Not all legal practice management software is created equal. Most tools provide standard reports to understand law firms’ financial metrics, but the top reporting platforms offer robust pre-built report templates out of the box. This advanced reporting functionality allows law firms to drill down into their data immediately and get faster insights compared to standard reports. They can be more cost effective, too, by avoiding paying for customized reports to be created.

Some advanced platforms also include cutting-edge data analytics and predictive modeling capabilities to help law firms identify trends, anticipate future outcomes, and make data-driven decisions.

4. Configure reports to fit your practice's needs

Leading practice management systems include advanced reporting capabilities and unlimited custom data fields, so firms can tailor reports to their specific practice areas, clients, and operational requirements.

With these advanced legal reporting tools, users can create custom data fields, filters, and calculations to generate highly specialized reports that reflect the firm’s specific practice areas, workflows, and metrics. By configuring reporting tools to fit their unique needs, firms can enhance data accuracy, streamline processes, and derive actionable insights.

5. Strengthen internal security with robust reporting permissions

Top legal software also provides granular, role-based permissions so administrators can control access to sensitive data and reports. These platforms allow administrators to define user roles and permissions, ensuring that only authorized individuals have access to specific reports and data sets. This feature enhances data security and compliance with privacy regulations and ethical responsibilities.

6. Share reports easily with quick exporting and importing

Law firms often need to share reports with clients, stakeholders, and regulatory bodies, necessitating seamless export capabilities. However, in some legal software, it can be cumbersome to collect and share the data in a format that others can read.

Leading practice management software allows users to schedule automated report generation and distribution at predefined intervals with just one click. This feature enables users to receive timely reports via email or other communication channels, ensuring that stakeholders can access up-to-date information without manual intervention.

How to level up your law firm’s reporting capabilities

Advanced reporting capabilities are essential for modern law firms seeking to maximize profitability, drive strategic decision-making, and thrive in today’s competitive legal landscape.

Centerbase goes above and beyond basic legal reporting features, offering a comprehensive reporting library plus advanced customization options, interactive dashboards, profitability reporting, role-based permissions, and much more. Its robust reporting features empower law firms to analyze data, drive attorney performance, and achieve their goals with confidence.

If you’d like to see how Centerbase’s reporting solutions can optimize your bottom line and drive strategic business decisions, see below to get a demo.

Agile, streamlined processes are what modern law firms need to effectively handle the full gamut of activities required to take a matter from client intake to paid in full. . Firms are under constant pressure to optimize their workflows, reduce manual errors, and maximize billable hours. Technology can address these challenges. But do you have the right technology to be effective — meeting client, staff and attorney expectations?

That depends. Have you embraced workflow automation yet? To get ahead of the curve, you’ll want to look into law practice management systems that offer more than out-of-the-box solutions — you need workflows personalized to your law firm’s needs.

Why should law firms avoid out-of-the-box workflows?

Some workflow automation is better than none, right? Well, it depends. Although the standard workflows that come with some legal practice management software can be convenient and save time, they fall short of custom workflows in several critical ways.

Out-of-the-box workflows follow a one-size-fits-all approach, assuming all law firms have similar processes. However, a generic workflow might not work for different practices because, for example, criminal defense workflows differ markedly from those of a real estate firm. Pre-built workflows might miss steps critical to your practice or include irrelevant steps that can lead to inefficiency and redundancy.

Generic solutions can also hurt adoption. Employees are more likely to engage with technology when it aligns closely with their daily tasks. Out-of-the-box workflows might not resonate with lawyers and staff, leading to low adoption rates. When users don’t fully embrace automated processes, your firm won’t realize the full value of your investment in technology.

What legal workflows will benefit most from customized automation?

A personalized approach to workflow automation can significantly enhance the efficiency of a number of law firm processes. Here are just a few examples:

• Client intake: Managing client intake efficiently is crucial for any law firm. Workflow automation helps in handling website form submissions, sending personalized response emails, scheduling follow-up tasks, and updating client information promptly.
• Conflict checking: Customized conflict check workflows help law firms identify potential conflicts of interest quickly and accurately by cross-referencing client data with existing cases and clients.
• Case management: When law firms set up personalized case workflows, they can create task lists, deadlines, and notifications for each type of case; trigger alerts for critical milestones; and assign tasks to specific team members based on their expertise and availability.
• Document assembly: Personalized document automation allows law firms to generate customized legal documents tailored to specific client needs. Automation tools can merge predefined templates with client data to create accurate and personalized contracts, agreements, and legal forms more efficiently.
• Billing: Personalizing your billing workflows accounts for the way you bill clients, whether it’s hourly, flat fee, or contingency. Workflow tools can streamline the electronic approval process for pre-bills, automate reminders for overdue bills at specific intervals, and manage discounts and interest calculations effectively.
• Time tracking: Automated tools track attorneys’ time as they work, whether that’s sending emails or texts or writing documents. Capturing billable hours automatically reduces the risk of time leakage.
• Calendaring: Task management and calendar appointments are automated, ensuring that deadlines and meetings are never missed.
• Client communication: With the right tools, you can program client interactions, including emails and follow ups, based on individual preferences and requirements to enhance client engagement and satisfaction.
• Task assignment: Custom workflows assign tasks and responsibilities based on team members’ skills, expertise, and workload.

It’s time to get personal — about your law firm workflows

Workflow automation, especially when personalized, helps law firms work the way they want, and do it faster and more efficiently. By automating tasks like client intake and billing, law firms can reduce errors, accelerate results, and enhance client satisfaction. And, beyond saving time and boosting profitability, customized workflows help firms work the way they’re used to, encouraging adoption and sustaining the usefulness of the software for the firm.

Get a demo today to discover how Centerbase can customize workflows to meet the needs of your law firm.

Written by Carol Patterson

Law firms that solely rely on tracking billable hours might assume that each legal matter they handle is equally profitable. This assumption is based on applying an attorney’s individual hourly billing rates to the client hours they devote to each matter. But this isn’t the most accurate way to determine matter profitability.

Some types of client engagements are likely to incur significantly higher costs than others, while some matters generate greater profit margins. The only way to tell which matters the firm should invest its time in is to look at profitability at the matter level.

So, what is matter profitability, and how can you maximize it at your firm? In this article, we’ll explore the concept of matter profitability and provide practical strategies to help optimize your law firm’s financial performance.

What is matter profitability?

Matter profitability refers to a law firm’s ability to generate optimal revenue and profits from each legal case or matter they handle. It’s a critical metric that directly impacts a law firm’s financial health and long-term sustainability. It goes beyond just billable hours. It involves considering various factors, such as the complexity of a matter, the expertise required to handle the matter, the resources allocated to complete the work, other expenses associated with the work, and the efficiency of the legal team.

To calculate matter profitability, law firms must deduct all the direct and indirect costs associated with handling a particular matter from the revenue that the case generates. Direct costs include attorney fees, court filing fees, expert witness fees, and other case-specific expenses. Indirect costs include overhead expenses, such as office rent, administrative staff salaries, and general administrative costs.

Fortunately, law firms can employ several strategies to improve matter profitability without compromising the quality of legal services provided. It all starts with the data you collect on your firm’s profit margins. Let’s take a look at some common scenarios for law firms and how firms can improve their matter profitability.

Sometimes the matters we take on lead to disappointing financial results. Sometimes we come close to breaking even or losing money on a matter. How can we figure out which matters to take at the client intake stage?

Matter profitability starts with selecting the right cases from the outset. Most client intake processes gather basic information about a client and their matter, but you need to do more than run a basic conflicts check and assess the facts to determine whether you should take a matter.

To identify matters that have the highest profit potential, you need to understand the types of cases that generally have lower expenses and generate the most successful outcomes. Profitability reporting data can show you historically what types of matters have been the costliest in terms of outlay, led to fewer collections, required higher write-offs, and more.

Law firms should regularly evaluate matter performance to identify areas of improvement and what cases to find to keep profitability high. Conduct post-matter reviews to assess the financial performance of each case, analyze the effectiveness of the legal strategies employed, and identify any cost overruns or inefficiencies. This feedback loop allows the firm to make data-driven decisions that will enhance future matter profitability.

Our attorneys are billing a lot to a certain matter, and a lot of senior partners are working on this project. It seems like our matter profitability should be higher than it is. Are we looking at the wrong figures?

The key is to remember that improving law firm profitability at the matter level requires firms to take a deeper dive than just billable hours and billing rate. Firms should run profitability reports to get greater insights into their expenses by matter and their client pay timelines so they can answer several questions:

• What expenses are out of control?
• What can we do to trim or better control our expenses?
• How fast are clients paying our bills every month?
• If our clients take time to pay us, what can we do to entice clients to pay our bills faster?

Profitability reporting can highlight areas where there may be problems in workflows in your law firm that are inhibiting profitability, such as an attorney’s failure to enter all time worked or write off too many tasks. To understand the true cost of a case, attorneys need to understand all the time they spend on a matter, regardless of whether it is billable, and any time reductions.

As for expenses, law firms need to track both hard and soft costs. Hard costs are any costs paid on a client’s behalf. Soft costs are overhead costs, such as office leases, copying, mailing, deliveries, and the like.

Depending on what the profitability reports show, it may make sense to change how your firm bills for certain matters. In some cases, a flat fee model may not work well, and you may need to switch to an hourly rate or to a percentage of the recovery on a case. Or, if clients are not paying their bills on time, you may need to set up a payment schedule or plan. If nonbillable hours or written-down hours seem high, you should talk to the attorney responsible for the matter about why and figure out a strategy that reduces those costs in the future.

Focus on the matters that will grow your bottom line with Centerbase’s Profitability Reporting

If you aren’t hitting the 50 percent profitability target at your law firm, you may be wondering which matters are really contributing to your bottom line. To get the answers you need, look to our latest tool: Profitability Reporting. With Centerbase Profitability Reporting, you can go beyond your gut and get clear, actionable insights into which matters are the most profitable and which matters to avoid, so you can seize the right opportunities for law firm growth.

Are you ready to take your matter profitability to the next level? Contact us to sign up for a demo of the Centerbase platform and our Profitability Reporting tool today.

Written by Carol Patterson

All law firms collect and study data about their bottom line. If they’re in the red, they know they need to figure out what’s holding them back. But if they’re in the black, they may not dig deeper to understand what’s working and what’s not. After all, a profitable firm is a healthy firm, right? 

That’s not always the case. If your law firm has multiple offices or is practicing in several different areas of law, it might be that one location or practice is propping up another. Or it might be that a potentially profitable practice is located in an area with too few high-paying clients or with a high tax rate.  

Aren’t these details you’d want to know as a law firm leader? Absolutely! And you can by using Profitability Reporting tools. Let’s take a look at some scenarios where profitability data can help you make smart, strategic decisions that will move your law firm’s profitability forward. 

Our [fill in the blank] practice group or law firm location is busy, but it’s not turning a consistent profit. How can we figure out why their profitability is so low? 

One reason is that you might have situated a practice in the wrong location. Let’s say you’ve got a divorce and custody practice located in a big city, where there’s lots of competition and a high tax rate to boot. You’re going to have to keep your prices lower to compete for business, and then the government is going to cut into those fees even more. 

You can use your profitability data to identify underperforming locations or practice groups and take appropriate action, such as closing or merging offices or practices, to optimize profitability. With this data in hand, you can model different scenarios, including adjusting your billable rates or flat fees to accommodate a higher tax rate and take on fewer clients. Or you may need to move a practice to a satellite office outside the city and use remote tools to work with clients in the city to improve your practice group profitability. Alternatively, you might find an opportunity to acquire another law firm in that area and then focus your resources on other, more profitable practice areas. 

Some of my lawyers work in multiple offices. How can I see where they’re working most profitably? 

If you have a profitable attorney splitting their time between a Connecticut office and a New York office, it can be hard to tell where they’re generating the greatest profits unless you look at their results by location. The key is to look at the location where the work is actually happening. 

Profitability Reporting can help you isolate where your attorneys’ profit margins are the highest, so you can sift through the details about their billed, written-off, and collected fees and their costs to drill down to the details that matter. 

Our attorneys want us to spend more dollars on advertising, but I’m not sure we’re getting our bang for the buck. How can I tell what marketing strategies are working? 

If your partners are blowing through their marketing budget and their profitability numbers aren’t soaring, you need to figure out why. One way to sort out what’s working and what isn’t is to run a report on profitability by resource.  

Let’s say a lawyer wants to invest in advertising on a particular radio show and claims that they’re bringing in new clients based on their ads. A law firm administrator can dig into the numbers to determine the impact of that spend on actual client revenue. If the clients are coming in but not bringing the dollars with them, it makes sense to invest those marketing dollars in other channels that will lead to more lucrative business. 

Some of our practice areas have razor-thin profit margins. How can I improve the profitability of these practice areas? 

To accurately assess profitability, law firms need to allocate both revenue and costs correctly. This involves allocating direct costs, such as salaries and expenses directly related to specific locations or practice areas, as well as indirect costs, such as overhead expenses and shared resources.  

Some of these costs may include write-offs too. Take, for example, insurance defense practices. Often, the profit margins in these practices are razor thin, given competition and the rigorous scrutiny that insurance companies apply to their bills. If you bill for the wrong thing, their billing software algorithms will identify problematic entries and send the invoice back to you, further delaying payment and shaving your profit margin even thinner. 

While it’s good to offer some services pro bono, you don’t want to pay businesses to be your clients. To ensure you’re focusing your attention on profitable clients, you can look for cost savings opportunities. You can also study how much each practice area is writing off or not collecting and use it to determine whether you need to adjust your rates, change how you bill for your work, or make different decisions about who your firm takes on as clients. 

Find new avenues to law firm productivity with Centerbase’s Profitability Reporting 

Partners and firm administrators have a new tool in their arsenal for measuring their law firm profits: Profitability Reporting. The latest addition to our software portfolio empowers leaders to make smarter decisions about resource allocation, marketing, and more using profitability at the practice group and office location level (as well as by timekeeper). Law firms can also focus their attention on markets and practices with the greatest potential for growth, client acquisition, and revenue generation. 

Are you ready to take your location and practice area profitability to the next level? Sign up for a demo of the Centerbase platform and our Profitability Reporting tool today.  

Written by Carol Patterson

If you’re running a small or midsize law firm, you’re probably juggling a lot of things, trying to maintain your law practice while also managing the business of your law firm. You may not always have your finger on the pulse of the metrics that matter, yet you probably do take a quick glance at your firm’s overall revenue and your timekeepers’ billable hours. So far, your firm isn’t in the red, and your partners seem to be churning out work. But these two statistics, in isolation, aren’t a meaningful gauge of your firm’s overall performance.

Say, for example, that you have an attorney who is bringing in a ton of revenue. However, when you take a closer look at the numbers, you discover that his expenses are incredibly high, and he isn’t billing enough to cover the costs of his practice.

You might also have brought in a lateral with a huge book of business — and a huge salary to boot. But while his billables are high, there are too many write-offs to cover his monthly paycheck.

Or perhaps your star rainmaker has landed a million-dollar client. But the expenses of working for this client are sucking your firm dry to the point that you’re actually paying this client to be on your roster. You’re running a law firm, not a charity.

How can you figure out that these problems exist if you don’t look at profitability by timekeeper? You can’t.

As you can see, it takes more than managing the bottom line to run a successful law firm. And a firm’s success depends on the success of every timekeeper. That’s why it’s so important to monitor profitability per attorney or timekeeper. That’s where Profitability Reporting comes in. Here are just some of the pressing profitability questions that a good tool can help you answer.

My lawyers are billing out the wazoo. Doesn’t that mean they’re profitable?

There’s a tremendous difference between being a top biller and being profitable. If an attorney is burning the midnight oil every night churning out briefs or contracts, they may not be as productive as they should be. Clients can’t be billed for inefficient work, so some of these timekeepers are having their hours written off.

Your law firm’s goal should be a 50% profit margin. That means you should set the same profitability goal — 50% — for each timekeeper too. Profitability Reporting can show you the complete picture of how write-offs are hurting your profits.

Some of my lawyers aren’t billing enough. How can I help them bill more hours?

Profitability Reporting can also help you assess the profit margins for each timekeeper by comparing their billed, written off, and collected fees to their associated costs, including overhead expenses and direct costs. If timekeepers aren’t billing enough to cover their keep — their overhead including their salary — something needs to change.

Profitability Reporting can give you the insights you need to have a coaching conversation with attorneys who aren’t logging enough hours so you can help them find ways, such as automation, to make their work more efficient; encourage them to spend less time on nonbillable matters; or balance the workload so everyone has a more equal load. You may also notice an opportunity to help lawyers struggling to meet their billable quota with tools that make it easier for them to capture every billable minute. If all else fails, you may need to adjust their billing rate, encourage them to manage their costs more effectively, or even change their salary to match their profit margin.

My lawyers are billing a lot and bringing in new clients, but they still can’t hit the 50% profitability threshold. What should I do?

It may be that your lawyers are doing lower-value work or work for clients where the profit margin is razor thin. Profitability Reporting helps you evaluate the value of different practice areas and types of work that your lawyers handle. The right tool pinpoints trends and shows which areas, matters, and tasks generate higher billable hours and profit margins. This analysis can help guide resource allocation and encourage your timekeepers to search for clients and focus on the work that delivers the biggest payoff for their effort.

Timekeeper data can also show you whether you have set the appropriate pricing and fee structures for the work. By analyzing the relationship between billing rates, fee structures, and realization rates, you can identify opportunities to adjust billing rates, introduce alternative fee arrangements, or negotiate better terms with clients to improve your overall profitability.

Finally, the data in a Profitability Reporting tool can help you make tough choices. It may be that a lawyer on your team is just not able to generate the profit necessary to justify keeping them in the firm. If that is the case, it’s better to cut them loose so that your firm can focus on recruiting timekeepers capable of keeping your firm in the black.

We use flat fees. How can I figure out whether my timekeepers are profitable?

Typically, profitability is calculated using hours worked. But if your timekeepers aren’t counting their hours because you’re billing clients on a flat-fee basis, then you can’t make that calculation. That doesn’t mean all is lost.

New Profitability Reporting modules are being built n that will help you calculate profitability even when you’re using a flat rate for your services.

Start maximizing your timekeeper profitability with Centerbase’s Profitability Reporting

Our new Profitability Reporting tool makes it easy for law firm leaders to track revenue, expenses, and profits at the timekeeper level. With this data in hand, you can determine how each timekeeper in your practice can improve and give them targeted advice to strengthen their performance. And, when each timekeeper improves, you increase your firm’s overall profitability.

The Centerbase platform gives you all the tools you need to turn your law firm into a profit-generating machine. To learn more about our Profitability Reporting tool, reach out for a free demo today.

Written by Carol Patterson

For five quarters in a row, law firm profitability has fallen, according to the 2023 Report on the State of the Legal Market, a study conducted by the Thomson Reuters Institute and Georgetown. (Data are based on reported results from 170 US-based law firms, including 46 AmLaw 100 firms, 47 AmLaw 200 firms, and 77 midsize law firms.) Profits per equity partner are down for the first time since 2009. Client payments and realization rates are down too.

Demand has also dropped for everyone except midsize firms, where clients are flocking because they want quality legal services without the major firm price tag.

So, how can small and medium-sized law firms capitalize on this demand and optimize their profitability? That’s what we’ll cover in this article.

Why does profitability matter for law firms?

Law firms should focus on profitability for a number of reasons. First, being profitable ensures that the firm can sustain its operations and provide quality legal services to clients. Having a profit allows firms to comfortably cover their operating expenses, such as rent, salaries, technology, research materials, and marketing, and establish contingency funds and reserves for unexpected expenses or downturns in business, such as a global pandemic, potential lawsuit, or market uncertainties.

It’s also important for law firms to have sufficient funds to invest in resources and infrastructure to stay competitive and deliver efficient services. To stay ahead of the curve, firms should make investments in technology, legal research tools, document management systems, communication tools and client portals, matter management systems, and training. The more profitable a firm is, the better it can enhance its capabilities and client service through investments like these. And the more investments a firm makes, the better able it is to attract, engage, and retain attorneys and staff members — not to mention pay them competitively.

Finally, profitable law firms are positioned to pursue growth opportunities and expand their practice areas or geographic reach. They can invest in client and business development strategies that attract new clients and increase their market share.

Why do law firms miss their profitability goals?

The baseline profitability goal for a law firm is 50 percent. If your firm isn’t hitting that mark, it may be because your expenses are too high or you aren’t earning enough revenue. Or maybe you are too heavily staffed, which can drain your law firm’s financial resources. The key is to figure out what is causing the problem.

Many firms look at their profit and loss statements, but these statements don’t tell you the whole story. The typical law firm P&L report isn’t granular enough to help you determine the true source of revenue and expenses. You may have a timekeeper who brings in a lot of revenue but not enough to cover their incredibly high expenses, for example. Or you may have a million-dollar client, but what you shell out to keep that client and maintain their business is so high that you’re essentially paying the client to remain on your roster. But you likely can’t tell that from your current financials.

The problem stems from too many law firms not running their firms like a business. Law firms that lack accountants don’t fully understand the concepts of what makes firms profitable. If your firm’s office manager or paralegals are managing your accounting, they are certainly capable of handling billing, checks, and cash receipts, but they won’t be able to focus on your law firm’s bigger financial picture.

The bottom line is that if you’re focusing just on revenue and expenses, you’re missing important details. Many law firms overreact when expenses look high and look for ways to make cuts. But if you’re focused on reducing spending, you’re also contracting your business, and the revenue will follow, as will employee morale and output.

And if you aren’t yet using law firm accounting software, you’re just planning your law firm’s future based on guesswork. That wouldn’t pass muster for your clients, and it shouldn’t pass muster for your shareholders, either.

What is the best way to monitor law firm profitability?

The key is to study profitability by timekeeper. This way, you can discern which attorneys are in the clear and which need help. To get the full picture of expenses and profits for every timekeeper, you need to monitor direct expenses, indirect expenses, plus overhead. But most law firm billing platforms can’t deliver this information without running reports from hundreds of general ledger accounts.

Centerbase is here to fill the gap. Our new Profitability Reporting tool delivers the data that your partners need to drive smarter business decisions. Our tool goes beyond showing more than just data on what’s been billed and collected. Our platform helps you track revenue, expenses, and profit margins at the firm, practice group, and individual levels, so you can optimize your firm’s profitability and improve its financial performance. You can also analyze key metrics such as billable hours and realization rates so you can set profitable billing rates and pricing and create accurate budgets. With our platform, you can determine which timekeepers are most valuable to your firm, what practice areas to expand, and which matters are contributing to — and hurting — your bottom line.

Centerbase puts real-time accounting tools in the hands of everyone in your law firm. It’s like having your own personal accountant on call. Contact us for a free demo and learn how our profitability reporting can help you kick-start your law firm’s growth.

The practice of law — even in a firm environment — is typically individualistic. The siloed nature of the practice of law can lead to duplicative work and bottlenecks. One key to making legal work more efficient and profitable is working together as a united front, and the best way to create that front is through collaboration.

In this article, we’ll cover the basics of internal collaboration, including why it’s important for productivity and your firm’s bottom line, how you can use it to retain clients and legal talent, and where legal technology can lend a helping hand.

What is internal collaboration, and why is it important?

At its core, internal collaboration means working as a team. It acknowledges that together we can accomplish more than if we act alone.

Some lawyers think collaboration is antithetical to the practice of law, which they view as inherently competitive. But internal collaboration is an important part of working in any organization and is important if your law firm wants to find new ways to reach its productivity and profitability goals. Research shows that law firms that get collaboration right earn higher margins, attract more lucrative clients, and inspire greater client loyalty.

Does internal collaboration improve the client experience and profitability of my law firm?

A better-connected law firm means more access to the internal riches of the firm. Your firm is likely full of expertise — experts in litigation, real estate, accounting, and human resources, to name a few. But unless you have collaboration, a lot of that expertise may go untapped.

Lawyers often face complex issues that fall outside of their practice area expertise. If you’re a litigator dealing with a benefits issue, knowing how to access and work with your employment and benefits team is important to providing the best client service. If you practice in family law, when it comes to alimony across state lines, you might require some assistance from a colleague with tax expertise or before a different jurisdiction’s courts.

Better collaboration means better business, and better business means more business. Frictionless internal collaboration is good for your clients, and it’s good for your bottom line.

How does internal collaboration affect firm culture and its ability to attract and retain talent?

A recent McKinsey study looking at employee retention rates in connection with the COVID-19 pandemic asked employees why they quit their jobs. The top three factors cited were that the employees didn’t feel valued by their organizations (54 percent) or their managers (52 percent) and that they didn’t feel a sense of belonging at work (51 percent). The third response is particularly important to law firms.

Unpacking the term “belonging” goes beyond compensation and benefits and into something much more human. All employees, regardless of their level, want to feel that their contributions are noted and appreciated by both their leaders and the organization as a whole. Internal collaboration plays a critical role, allowing law firms to build camaraderie by recognizing that everyone has something to offer. People want to stay where they are seen and appreciated.

Organizational culture is a big part of this too. A law firm culture based on collaboration that prizes collective knowledge is preferable to one where lawyers gatekeep resources and compete with one another. Creating a great law firm culture starts with an open dialogue of free-flowing ideas and feedback, which areimportant components of internal collaboration.

Three steps to improving collaboration at your law firm

There’s no silver bullet that will improve collaboration today at your law firm. However, if you follow these three steps, you’ll develop an environment that encourages collaboration — one where team members work together to accomplish their goals.

1. Foster a culture of collaboration

Law firms can promote a culture that rewards collaboration by setting appropriate expectations and incentivizing teamwork. Firms should create opportunities for cross-department collaboration as often as possible.

One place to start is assigning team members to work on projects outside their usual practice area. Or you could create a cross-functional team to tackle a challenge a client is facing, to address lawyer recruitment, or to devise new business development ideas. Simple team-building activities, such as coffee breaks, lunches, and other social events, can also build bonds between people who wouldn’t otherwise interact.

Whichever avenue you choose, be sure to recognize and reward collaborative efforts. You may also want to incentivize collaboration by including it as a metric in your firm’s yearly evaluations.

2. Encourage open communication

Communication is the foundation for effective collaboration. Start encouraging open communication by creating an environment where team members feel comfortable sharing their ideas, concerns, and feedback. To build a more collaborative environment, schedule regular gatherings, including team meetings and brainstorming sessions.

If your lawyers and staff are willing, you can also bring in outside experts to help develop collaboration and teamwork skills, including communication and conflict resolution.

3. Use collaborative technology and tools

Technology is a powerful enabler of internal collaboration. Legal technology helps teams build a collective knowledge base that everyone can access. In turn, this improves work quality, avoids duplicative efforts, and accelerates results.

For instance, a fully integrated matter management system corrals data and documents in a single source of truth. It can keep everyone on a team or in a firm up to date on matter status and highlight roadblocks where someone may be able to offer their expertise. With a matter management system, teams can collaborate in real-time and track matter status, no matter where they are in the world. And lawyers can exchange messages seeking help from each other, such as whether anyone has experience dealing with a novel legal issue or has appeared before a particular judge.

Cloud-based document management systems also make it easy for multiple people to work simultaneously on documents, accelerating your results. You can also avoid the lag time of waiting for people to turn drafts around or trying to figure out which version is the most recent, both of which can discourage teamwork.

Take the next steps toward collaboration

Law firms can start improving their service delivery — and their bottom line — by taking steps now to remove the barriers to collaboration. To learn more about how technology can make it easier for your legal team to get work done, get in touch.