How to Decide When to Invest In Outsourcing to Increase Attorney Profitability

Clients and the practice of law can be fickle. The uncertain duration of demands and limited time certainly make it difficult to know when or how to bring in help. Evaluating this problem does not require a long-term solution or considerations of inter-office politics. Instead, it simply boils down to the numbers.

Performing a basic economic analysis of the true costs can make it crystal clear when to tough it out and when to outsource that help—even if just for the short term. Here are some basic steps to help objectively tackle the calculation:

  1. Take Stock of all the Demands

It is impossible to know just how much time is spent or all of the things that need to be done if it is not tracked somewhere. Reacting or continuously responding to fire drills only hurts the long term profitability and sanity of everyone involved. Instead, commit to having everyone track everything—especially the non-billable. Commit to at least a week, but a month would likely be better.

There are two easy ways to start tracking everything. Here are some suggestions when tackling either approach:

  • Make To-do Lists:
    • Write-down everything that needs to be done tomorrow at the end of the day.
    • Mark a “B” and “NB” or some other symbol whether the work is billable
    • Check off everything that actually was accomplished at the end of the day.
    • Take everything that was not done and roll it on to the to-do list for tomorrow.
  • Utilizing the Billing System:Track all of your time whether billable or not.
    • Create separate billing codes or other methods to categorize the non-billable time.
    • Run a report at the end of the week to determine time spent under each category.
    • Investigate whether there is a reporting or reconciliation function in the system to compare time and money invested in business development and return on investment.

Regardless of approach, make sure that everyone participates in the tracking progress. This should include timekeepers and any non-timekeepers in order to understand the full scope of work within the office. The mere task of tracking will help everyone to better reflect on her day and to identify opportunities for future improvements.

  1. Calculate the Opportunity Costs

Take the time to calculate all of those other costs besides the non-billable time. This does not have to be precise and even the rough estimates can be useful in guiding the decision process. These additional opportunity costs can include things like:

  • Loss of employees, attorneys, or clients. There are inherently costs in marketing, recruiting, training, or technology that result from each one of these events.
  • Periods of considerable stress or an unusually high volume of billable time are frequently followed by lost productivity. Imbalanced workload inherently leads to shorter days, extended time off or even departure. Monetizing these costs can be challenging but inherently present a huge economic drag if not addressed.
  • Lost new business. Time spent overworking on a matter or stuck in administrative backlog means time away from landing a new client, building existing client work, or some other revenue generation potential. This costs money and presents real problems over time—even when the imbalance is episodic or incremental.
  1. Do the Math

Most lawyers avoid math like it is the plague. But, math does not have to be intimidating or feel useless. Simply insert the numbers fleshed out above into the some of the calculations below to better understand the economics of your practice or firm. This can significantly take the stress out of any outsourcing or staffing decisions. The calculations below can also be applied at the firm level or even at a client/matter level to determine or maintain profitability for a particular matter:

  • Cost of Non-Billable Time:
    • Attorney (or paralegal) hourly rate x Number of Non-Billable Hours = $ Cost (per person)
      • Example: 10 NB hours x $200 hr/rate = $2,000 (Per person for a week)
    • Add All of the Non-Billable Costs=Firm Costs
      • Example: $2,000 x 5 attorneys = $10,000 (total cost per week)
  • Calculate Cost Per Billable Hour:
    • Materials + Labor = Direct Cost of Billable Hour
      • Example= $48/hr (attorney salary) + $20/hr (assistant time for proofing) = $68

Cost will vary depending on type of work performed, using what, and by whom.

  • Profit Per Billable Hour:
    • Hourly Rate – Cost Per Billable Hour= Profit Per Billable Hour
      • Example = $ 200 – $68 = $ 132

Assumes a static cost per hour that is subject to change.

  • Overhead:
    • All (fixed cost+ fixed cost + fixed cost)=Overhead
      • Example: $1,000 rent + $100 insurance + $100 taxes = $1200
  • Cost of Operations:
    • Overhead (i.e. lease, insurance, utilities, taxes, etc) + Cost of Non-Billable Time= Full Cost of Operations
      • Example: $1,200 + $10,000 = $11, 200 (total weekly cost of operations)

Includes opportunity costs of NB time. Assumption that timekeeper would have billed.

  • Break-even:
    • Overhead / (Profit Per Hour )=Break-even
      • Example: 11,200/$132 = 84.84 hours

Break-even means=point at which sales exactly cover expenses. No loss, no gain.

  1. Identify Priorities and Opportunities

Client demands may prevent even the best intentioned attorney from fully crunching the numbers to evaluate the decision of when to outsource, expand, or just tough it out. In that case, invest a little time to meet with a company that specializes in legal staffing and consulting—like Tower Legal Solutions. The companies who are best at doing this understand that the important issue is what is going on with you—not some cookie-cutter approach. Some examples of types of outsourcing that can lead to the biggest improvement of profitability include:

  • Administrative assistant support to scan documents, edit drafts, and file documents.
  • Billing specialist to reconcile invoices, payments, and follow-up on AR.
  • Paralegal to compile documents, review technical materials, and finalize PTO filings.
  • Attorney to perform research, review record, and prepare draft of appellate brief.

The right strategic partner can provide the support needed for whatever circumstances regardless of form or duration. Big, small, long, short, intermittent. Any need can be met with the right legal staffing partner.

The needs of every practice and organization is dynamic. Outsourcing with the right provider can build in the flexibility which is critical to ensure long-term profitability. Time and money are always at a premium. Maximize your time and investment by reaching out to companies like Tower Legal Solutions who will customize the approach to improve your profitability by using the right people to support your objectives.

BY: L. KATHLEEN HARRELL-LATHAM

ABOUT TOWER AND THE AUTHOR

TOWER LEGAL SOLUTIONS AND TOWER CONSULTING SERVICES HAVE SPECIALIZED KNOWLEDGE AND EXPERTISE THAT HAS PROVEN TO HELP LAW FIRMS AND CORPORATIONS REDUCE LEGAL SPEND WHILE MEETING CHALLENGING DEADLINES. TOWER HAS A NATIONAL PRESENCE WITH OFFICES IN NEW YORK, WASHINGTON D.C., CHARLOTTE, DALLAS, MINNEAPOLIS, AND LOS ANGELES. KATHLEEN IS AN EXPERIENCED ATTORNEY LICENSED TO PRACTICE IN MINNESOTA AND KANSAS. SHE IS CURRENTLY THE MANAGING DIRECTOR OF THE MINNEAPOLIS OFFICE OF TOWER.

Learn more about Tower Legal Solutions: www.towerls.com

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