Law firms have weathered all kinds of economic uncertainty. In recent years, they’ve understandably engaged in short-term profitability tactics, such as cash management, cost reductions, and significant fee rises.

Addressing immediate challenges remains essential to remain an employer-of-choice for top tier legal talent. However, firm leaders must ensure a short-term focus doesn’t cloud their long-term vision.

With the economy showing signs of stabilization (and in many regions growth), interest rates potentially declining, and other positive factors in play, we’re now seeing law firms go from asking, "How do we get ahead and win?" to "What can we do next to drive long-term prosperity?".

The limits of short-term thinking.

Short-term planning has its limits. Last year, higher billing rates and stricter collection practices drove financial gains for many firms.

However, business-savvy clients will not tolerate perpetual price hikes. In fact, 76% of law firms say clients are increasingly demanding more discounting and greater financial transparency, according to the BigHand Annual Law Firm Finance Report.  

My guess is lawyers will balk at spending even more time chasing overdue bills and chasing down discounts and payments.

Meanwhile, challenges in work allocation, time entry, and billing practices offset the actual value of last year’s gains. Write-offs increased for 59% of firms last year (43% by more than 10%), and 60% expect write-offs to rise this year.

Still, there are promising signs to go with today’s cautiously optimistic economic outlook. Associate hiring is slowing, and the rising costs of new associates seem to be stabilizing, giving firms a break from this drag on profits. And most importantly, many firms have invested in legal technologies that automate routine work and improve financial control.

Legal KPIs lead to a bright future for law firms. 

Business intelligence and financial software offer visual dashboards with detailed and accurate views of financial performance. As a result, the answer to “What’s next?” is:

Tapping into data-driven insights for sustainable growth and success. Collecting and analyzing unbiased data in multiple areas for new insights to inform long-term strategies, including:

1. Empower business-minded lawyers.

Offer financial literacy training and allow lawyers to track their own performance data. Lawyers can then make fact-based decisions about case selection, workloads, and time management. Seeing how their daily actions contribute to the firm’s business goals gives lawyers a sense of ownership and accountability and helps them make better profit-driven decisions every day.

2. Optimize utilization for higher profitability.

Analyze individual capacities and workload distributions to optimize leverage, partner and associate utilization rates and achieve a more equitable division of work. These decisions also help the firm maximize billable hours, reduce the risks of employee burnout, support associate development strategies and meet DEI goals.

3. Adopt data-driven cost strategies.

Automated systems can track matter costs and expenses against proposed budgets and alert lawyers of any discrepancies in real time. Lawyers can make immediate adjustments to maximize profit, minimize write-offs and discuss potential overruns with clients to build trust and credibility.

4. Adjust billing cycles and automate for efficiency.

Traditional 30- to 60-day billing cycles exacerbate cash flow challenges. Collecting fees more often and in smaller increments can improve financial flexibility. That’s why 64% of surveyed law firms plan to bill clients more frequently, and 31% are adjusting their billing terms.

Financial software follows internal controls to eliminate timekeeping and billing bottlenecks and errors. Sped by automated approval workflows, your firm can send more accurate invoices more often. And because automation ensures invoices meet outside counsel guidelines, client systems process and pay invoices faster.

5. Optimize productivity with technology.

Automated touchpoints connect with nearly every firm function. Each point can become an important KPI. Track relevant KPIs to evaluate individual and team productivity across all departments and find areas where lawyers and staff can work more efficiently.  Underpin your decisions with objective data for optimized outcomes.

By relying on the long-term strategies above, your firm's financial strategy will prioritize sustainable profitability over short-term tactics like aggressive rate increases. All you need is the right software, driving the right data to make the right decisions. Learn more about the BigHand solutions that can help you drive long-term success in 2024 and beyond.