Running a profitable law firm isn’t easy, even in the best of times. During tumultuous times, it’s even more challenging.
As we head into a possible COVID-19 surge and what many believe may be a recession, even seasoned lawyers may be wondering how to build resiliency into their firms that will provide protection from the many uncontrollable external factors that affect revenues. While it may seem like a pipe dream, rest assured that you can take steps to help your firm withstand the effects of volatility while also providing a foundation for long-term success.
Sound too good to be true? It’s not. There’s actually data that backs this claim up, and you’ll find it in a recently released report.
The Benchmark Report
A few months ago, financial benchmark data was obtained from the MyCase law practice management platform. The data was anonymized and then analyzed to understand how different legal professionals used the legal and billing features available to them. The goal was to ascertain which features have the most significant impact on the day-to-day activities and the financial viability of law firms.
The end result is Part 2 of the 2022 MyCase Benchmark Report. The final Benchmark Report will be a three-part series. In Part 1, which I wrote about here, we analyzed productivity data to determine how work gets done in firms and by whom. Part 2 is discussed in this post, and Part 3 will offer insights from the financial and lead generation data.
Part 2 of this report was released last month and is focused on financial data related to law firm revenues during the pandemic, collection rates, payment time frames, and practice area hourly rates by geographical region. This data, which I discuss below, provides actionable information that lawyers can use to set competitive rates, ensure higher collection rates, and increase revenues.
The Many Benefits Of Offering Payment Flexibility
From the data, we learned that one key way to increase law firm revenue is to offer clients increased payment flexibility. When you make it easier for clients to pay legal bills on their terms, they’re more likely to pay in a timely manner.
One approach is to accept more forms of payment by permitting clients to pay legal bills online using credit or debit cards. If your firm isn’t yet accepting online payments from clients, you’re in the minority according to the results of a survey recently conducted for the 2022 MyCase Legal Industry Report that will be released later this year. Over 2,300 lawyers were surveyed, and the results showed that the vast majority of law firms (84%) now accept online payments via credit cards and ACH payments from their clients.
Increase Collection Rates
When law firms accept online payments, legal bills are more likely to be paid in full. Data from the 2021 MyCase Legal Industry Report showed that more than half of the legal professionals surveyed (61%) agreed that they collected more money by accepting online payments.
Survey results from Part 2 of the MyCase Benchmark Report support this finding. A comparison of data showed that the collection rates for the firms that accepted online payments were nearly 10% higher than the rate of those that didn’t.
Specifically, in 2021, lawyers who accepted online payments invoiced $3.5 billion and collected $1.8 billion, which resulted in a collection rate of 51%. In comparison, law firms that did not accept online payments invoiced $2.4 billion and collected $1 billion, a collection rate of only 42%.
Get Paid Faster
Data from that same report showed that when lawyers offer clients multiple ways to pay invoices, they receive payment significantly faster. How much faster? According to 2021 data, lawyers who accepted online payments received invoice payments 32% faster than law firms that did not.
The data indicated that law firms that accepted online payments from clients were paid within 25 days after an invoice was sent. Law firms that accepted only checks and cash received payment nearly two weeks later, 37 days after an invoice was sent.
Set Competitive Billing Rates
Another way to increase revenues is to ensure that your firm’s billing rates are competitive. That’s where the regional billing rate data from Part 2 of the Benchmark Report comes in. By reviewing the rates charged by other similarly situated lawyers in your region, you can better determine whether your firm is charging competitive fees, and if necessary, increase your rates.
With the rate data from this report, you can compare your law firm’s billable rates for different types of matters with anonymized data of other lawyers in your geographic region who handle similar cases. You can view the hourly rates of lawyers in your area here.
Once you have a handle on what other lawyers in your area are charging for similar services, you may want to consider increasing your law firm’s rates, which will in turn increase your firm’s long-term profitability.
Managing a successful, profitable firm can be a challenge. The good news is that you’ve got hard and fast data available that you can use to take actionable steps to increase long-term stability and viability. By pricing your firm’s services appropriately and investing in technology that streamlines your firm’s billing and collection processes, you can rest easy knowing you’ve laid the groundwork for a resilient, revenue-generating business.
Nicole Black is a Rochester, New York attorney and Director of Business and Community Relations at MyCase, web-based law practice management software. She’s been blogging since 2005, has written a weekly column for the Daily Record since 2007, is the author of Cloud Computing for Lawyers, co-authors Social Media for Lawyers: the Next Frontier, and co-authors Criminal Law in New York. She’s easily distracted by the potential of bright and shiny tech gadgets, along with good food and wine. You can follow her on Twitter at @nikiblack and she can be reached at firstname.lastname@example.org.