Are you looking at your law firm’s financials and asking yourself, “Where does all the money go?”
It’s a common question. As I work with law firm owners trying to maximize their profit and even my own firm, one of the big areas that we spend a lot of time on is controlling costs.
Here are the top 5 areas that in my experience as both a law firm owner and a Law Firm Fractional CFO that law firms commonly overspend on, which decreases profit and ultimately undermines your financial success.
5. Overspending on Tech
Hey, I am all for spending on technology to help move our practices along. It is a cost of doing business in the modern business world. But that doesn’t mean that we don’t overspend on it, constantly.
Duplicate Subscriptions
For example, do you have duplicate subscriptions that do the same thing? One big example is that you probably have multiple meeting options — whether you are on Microsoft and can use Teams or on Google and can use Meet, why would you need Zoom?
Of course, you could have good reason for this — I like Zoom because it is platform agnostic. I think it is also a better product for hosting webinars or events. But it also means that I have Teams (I’m Microsoft based because finance runs on Excel) as a duplicate subscription.
Where else do we see this? Firms often forget to cancel old practice management systems that they aren’t using. Or are paying for DropBox when they have Google Drive or Microsoft OneDrive.
Right now, one that I see a lot is multiple AI/LLM subscriptions. Are you really using all of them? Or has one become your favorite and you never log into the other ones anymore? Drop that old subscription!
Under Utilizing Current Technology
Related to duplicate subscriptions is that many law firms are under utilizing their current tech stack. This is like throwing money away.
Tip: take the time to explore all that your current tech has to offer before you add a new service on top.
For example, maybe you are looking for better reports on how your staff is billing. Is this something that your practice management system can do?
Does your practice management system offer a CRM solution that you aren’t using? What about a client portal?
Many estimate that only about 5% of the features available in Microsoft Office or Google Workspace are used by users. Even in enterprise situations, estimates range from 64-80% of software features are rarely or never used.
Your current technology can probably do a lot more than you even realize. Especially if you have been using it for awhile and haven’t kept up with the new features that the SaaS companies have developed.
Yes, Hardware is Included
Most firms are also overspending on hardware. Sure, we all want the lightest, fastest laptops to practice law on. But what about all the other stuff? Can you upgrade instead of replacing the entire laptop?
Don’t forget about accessories. As a self-professed technology aficionado, I love buying some tech gear. It is like retail therapy for me. The number of microphones, web cams, keyboards, mice, and literally every other tech accessory that I have purchased is ridiculous. I even have to remind myself often to control the impulse to buy yet another gadget.
It’s not moving the business forward and I’d be better off with that cash in the bank.
My Most Hated Technology Expense
You know what hardware expense that I have come to hate the most? Leases on the large copier/printers. In the old days, these were absolutely required for large litigation or transaction firms. But today, many firms have gone paperless (or at least less-paper) and use electronic means to deliver those large discovery productions.
Yet, lawyers are stuck with long-term leases on large printers that they rarely use. Please, don’t get a new lease and look at whether you can do without the large printer going forward. For the few times that you need to do a large print or scan job, it is often cheaper to outsource to a place like FedEx-Kinkos or a local print shop rather than holding onto that copier for the 1-2 times a year you need it.
Extra Seat Licenses
Another way that firms overspend on their tech stack is by keeping extra licenses on their software. For example, when you terminate an employee, you can cut their license.
Want to cut their Microsoft account? First, transition their mailbox to a shared mailbox and back up their OneDrive to another account/firm account. Then, remove their license. Boom! Money saved, but email and documents preserved.
Also, you should regularly review your licenses and packages, to ensure that you are getting discounts, but also not paying for seats you aren’t using. Having extra seat licenses is an easy way to overspend in your law firm without even noticing it.
4. Overspending on Recruiting
The number one issue that most law firms face when they are growing is finding great talent – attorneys, paralegals, and administrative staff, all included.
In their desperation, many turn to recruiters to help them attract new staff members. And with the baffling job market, it makes sense that you want to tap into a talent pool that you may not have access to because you aren’t doing it regularly.
The recruiters know this – they are charging A LOT of money. And often for less than spectacular results. Or even no results.
Make sure that when you hire a recruiter that you understand what you are paying for. Get a guarantee that if their choice of a new employee doesn’t work out, that they will find you another one. Many will offer to find a replacement if the first one doesn’t last for 90 or 120 days. This protects your investment.
Many recruiters will also work on flat fee or their commission is negotiable. Ask for alternative fee arrangements to make it better for you!
Alternative Staffing Models
One way that many firms are finding success is to look at alternative staffing models. This can include international team members or a model that I particularly love is fractional work.
In law firms, many of the administrative roles can be done by fractional executives that work part-time for you. Here at Springboard Legal, I offer Fractional CFO and we also have Fractional Operations, HR, and marketing services for your law firms. This leaves you to practicing law while we take care of the business for you. As experts in running law firms, we can often accomplish in a fraction of the time what it takes others a full-time job to do.
This helps keep costs down for you.
Reduce Turnover to Reduce Recruiting Spend
The best way to reduce spending on a recruiter is to never need a recruiter. Or at least need them less often because you are only hiring for growth and not to replace your current team.
You do this by being more intentional in who you hire so that you get good fits for your growing team. You do this by paying your employees well. And of course, my “no assholes” rule — being a good boss and creating a non-toxic workplace.
Remember most people leave bad bosses, not bad companies. Although they will leave bad companies too.
3. Recurring Costs
Running a business comes with a lot of recurring costs. And it’s not just your tech stack subscriptions.
These recurring costs include your rent, insurance, and AI receptionists.
Want an easy win here? Find a recurring subscription that you aren’t using anymore. Think CLE providers. Extra phone lines. Transcription services. Cancel it and see an immediate improvement in your next P&L.
Can’t cancel it? Then try to negotiate a lower rate. You know the trick about calling to cancel and then being offered a lower rate? Use it to your benefit to get a lower rate on something that you use.
Lease up and you want to stay? See if you can get a lower monthly rent going forward. Or at least some extra free parking, a sign on the exterior, or tenant improvements for a refresh of the office.
2. Not Aligning Employee Compensation to Positive Outcomes
Payroll is the number one expense in most law firms. This industry is still very reliant on people, smart people that are highly compensated. In order to stay profitable, we have to pay close attention to how we spend on people (and yes, they are assets – treat them as such to be profitable in your law firm).
One way to align the employee compensation with law firm profitability is to set appropriate KPIs for billing (whether that’s hours or amounts billed or collected).
That’s “easy” though for your revenue producing positions, like attorneys or paralegals. Easy in quotes because it’s simple in concept but often harder in practice. But what about other positions that don’t generate revenue? Setting those KPIs can be difficult, but everyone should know what moves the firm forward and contributes to growth and profitability.
Beware the Disincentive
Sometimes, we create bonus or incentive programs that we think moves the firm forward but in reality, it creates a disincentive.
I’ll go back to a situation from working with a B2B distribution/retail company to showcase what I’m talking about. The store manager was incentivized to decrease AR over 90 days. That makes sense, right? More money in by moving AR to payment is great. But because of the way that the company looked at the AR, they missed large really old credits. Credits that should have been reported as unclaimed property but were sitting on the books because it helped the store manager get his bonus by keeping the 90+ day AR low. The company then got in trouble for late reporting the AR credit to the proper unclaimed property authority, costing them in penalties and interest while also having paid out the bonus to the manager for years.
This can happen in law firms too. In a personal injury firm, for example, if you create a KPI for how many cases the case manager touches, then it could be superficial “case updates” but not moving the case forward. But if the KPI is solely about how many days on desk the cases take, maybe the employee isn’t taking the time to properly analyze and work the case to maximize case value, leading to lower collections.
Setting the proper KPIs and aligning them with the compensation package is some of the hardest work you have to do as a law firm owner. Fortunately, Springboard Legal is here to help! 🥰
1. Overspending with Marketing Vendors
Part of the problem with running a law firm is that we haven’t been taught how to run law firms. And traditionally, advertising was seen as icky – just look at how we call lawyers that actively market as “ambulance chasers.” Sure, some of that comes from a lot of the practices that certain less scrupulous attorneys took to get cases. But that perspective pervades the entire industry and marketing.
Since we aren’t taught how to market our firms properly and the industry often looks down upon it, we turn to professionals and vendors that market. But many of those vendors don’t perform well. They cannot justify their high cost versus the results that you receive as a law firm.
Regularly reviewing the return on your investment is the key to not overspending in this category. Are the strategies working? Are you getting new clients? Are they the kind of cases you want? Are these quality clients that can pay?
Paying for leads that don’t convert to revenue is not just a waste of money, but also a waste of time. If you are getting lots of paying clients, then the marketing is good. As long as they don’t put your law license at risk.
The Overaggressive Marketer
Remember, we have a lot of restrictions on how and where we can advertise, as well as what we can say in our ads or marketing channels. Breaking these rules can lead to bar complaints and worse.
From putting dollar signs all over your billboards and YouTube thumbnails to not disclosing the responsible attorney, marketers will do what it takes to get you cases. But it’s not their licenses at risk, it’s yours!
I was amazed when I talked to one marketing company after a lawyer got a bar grievance. The marketing company, who held themselves out as a law firm marketing expert, didn’t know the rules relating to lawyer advertising and said it was on the lawyer to tell them that they couldn’t do that.
Protect your licenses! It’s not just overspending, but avoiding unnecessary costs in defending yourself from a bar grievance.
Where is Your Law Firm Overspending?
Have you taken a look at your financial statements to see where you are overspending? Would you even know that it is overspending?
As a Fractional CFO, I work with a lot of law firms. I know what the “norm” is by category, by practice area, and by firm size to tell you whether you are overspending.
Schedule a call so we can review your financials to see areas that you are likely overspending and build a plan to attack those high expenses. Thus, higher profits. And a more efficient law firm so that everyone is working on the same game plan.