How to Increase Law Firm Profits by $100,000 p.a. per partner by focusing on Average Hourly Rate

If you are planning to increase law firm profits at your law firm, a key performance indicator ( KPI) that I believe is critical to measure, is your Average Hourly Rate.

So what is Average Hourly Rate?

It is simply- Bill for the Matter / Hours Spent on the Matter.

This simple calculation will show you the amount your law firm earnt per hour for the matter.

For many law firms their revenue is limited by the number of experienced lawyer hours that they have available. If that is the case at your law firm, if you can increase the average hourly rate that is earnt in each of those hours, then your firm will make more money.

It sound obvious, but I am constantly surprised at how few firms actually measure this KPI.

Let me give you an example of the power of Average Hourly Rate.

Say your law firm has 2 partners and a further 4 fee earners.

You were set a goal to increase profit by $100,000 per partner.

Most people would feel slightly daunted by this task as the firm may only be making say $200,000 per partner in the first place, so this is a lift in profit of 50%.

Let’s convert that back to average hourly rate.

If the fee earners and partners of the practice are averaging around 1200 chargeable hours per year, then to earn an additional $100,000 per partner will require a lift in average hourly rate of slightly more than $27 per hour.

I find that when it is stated that way, most people immediately feel that the figure is much more achievable. When stated as an annual increase however, they had invariably felt that it was impossible or at least much more difficult.

Average Hourly Rate can help you identify many things that are important to your law firm profit. For example it can help you to:

1) Identify your most profitable services

2) Identify the better performers amongst your team for certain types of work

3) Identify fee earners who need more training or are suffering due to a lack of training in the first place

If addressed all of those issues will help you law firm to be more profitable. Indeed if your firm was the one I used in the example, just knowing those three things and acting on them, may be enough to help you to achieve the profit improvement you are looking for.

ACTION STEPS

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