How a small law firm can increase profit in the quickest and easiest way
If you own a small law firm that provides a range of services and you want to lift your firm’s profit in the quickest and easiest way, the two areas that can produce dramatic improvement with only minor changes are:
– Increasing the scope of services you provide to your existing clients; and
– Increasing the price of your services;
Let me address each in turn, then explore the potential profit improvement from a minor change to each.
Increasing the scope of services to existing clients
If you were to do an analysis of additional ways that you could help your clients with their problems, what clients would you initially target?
Would you target your most fee conscious clients, who question anything that may involve additional fees, or would you target clients where you have built a level of mutual trust and who appreciate your help and advice?
The answer while obvious, can easily be overlooked, as we tend to remember the client who complains about fees and/or questions our recommendations.
By targeting your best clients and exploring ways to help them more, you can expand the range of services you provide to your clients in the easiest and most enjoyable way.
A great client may still say no to your recommendation, but they will appreciate that you were thinking about how you could help them and may well say yes, to that recommendation at a later time, if it is an ongoing issue for them.
If, by spending more time with your most enjoyable clients, that leaves you less time to spend with your worst clients, is that such a bad situation?
Often, even your very best clients have a limited understanding of the laws that may impact their personal or business affairs. While they may enquire about a particular service, they will appreciate your suggestions or recommendations of solutions to problems that they may well not have even recognised for themselves. This is a real win for them and ultimately for you, if this leads to additional fees.
If you were to approach your relationship with your best clients in this way, what additional fees do you think you could generate from this Win/Win situation?
Increasing the price of your services
Increasing prices is a strategy that often involves a degree of angst.
Will all of my clients leave?
Will I struggle to attract new clients?
No doubt some legal services are more price sensitive than others. Competition for some services is intense and often it is very price focused.
If your firm provides a service where price competition is intense, it may be that you would be reluctant to increase prices for that service.
This is a common strategy for many businesses.
For example In Australia, many people would know that the major supermarkets sell a two litre milk for $2, but may well struggle to tell you the price of any other product in the 39,999 other products that the typical supermarket sells.
Price competition for milk is intense, but not so intense for the other 39,999 items, the supermarket may sell you.
Where do you think a supermarket may turn, if they were considering lifting their prices?
For firms that provide a range of services, selectively increasing prices is just one strategy to achieve an overall increase in prices, but of course there are a number of others.
The dramatic profit improvement of small changes in scope and price
The benefit for your firm in combining these two profit improvement strategies can be dramatic.
By way of example, say that by fully exploring the needs of your best clients, you were able to provide 10% more services.
While your salary expenses may well increase to handle the extra work, it is likely that with such a small increase, other overheads in total may not increase by much at all.
If salaries comprise around 33% of total fees and increase by 10% to handle the extra work, this small change could lift profit by as much as 20%
If, in addition you were able to lift prices for your services by an overall 10%, your costs may well have little change. If your firm is currently turning 33% of revenue into profit, a 10% price increase could lift profit by over 30%.
By combining these two changes, your firm could lift profit by as much as 53%!!
For a firm that provides a range of services, just focusing on these two areas could result in a significant increase in profit with relatively minor changes in these two key profit drivers.
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If improving cash flow is the issue for your firm, this article will explain how a small Melbourne firm implemented the strategies adopted by a successful small New Zealand firm, with equally stunning results for cash flow improvement.