BigHand conducts annual surveys gathering responses from over 800 senior legal finance professionals on the market pressures they are facing and their legal financial management strategies.

Legal technology expert George Egford gives his thoughts on what the findings reveal and how firms can safeguard profitability.

What statistics stood out to you and why?

The stat around only 34% have dedicated training programs within law firms, and that's really kind of across associates, partners, trainees. That ultimately provides education across their key performance indicators. I think this really kind of shows that most law firms are really kind of falling behind when it comes to commercializing tomorrow's partners.

I've seen really good examples of firms that have a very open culture around financial performance, and usually, you kind of maybe see the trend in the last 12 months that those firms have performed really well. I think you know this comes from having a very rich plan around financial training at all levels in a profession where billing, client, recovery, profitability metrics - all these things are really crucial day to day.

The lack of dedicated training programs suggests a significant gap between performance expectations of the lawyers on the ground with the support of training and [financial] awareness. I think this gap can really lead to inefficiencies around missed time and missed billing utilization. Maybe it's a kind of feeling that some associates and partners are unprepared for the business side of legal practice, and ultimately that's vital for career progression and firm success.

How can law firms balance the need for higher rates with the growing pressure to demonstrate value and avoid profit leakage?

I think firms recognize the need to respond to changing client expectations and buying habits. I think we've seen within our most recent survey that 34% of clients are reducing the number of firms they have on their panels, and 33% have found cheaper legal services kind of going elsewhere. The changes in client behavior are affecting the bottom line, and with this year's survey revealing over a quarter (26%) increase site increasing demands for pricing transparency from clients as a top challenge for the firm's financial health.

However, law firms, I think, can strike a balance between charging higher rates and showing value while avoiding profit leaks by getting smarter about how they use data. Technology, especially business intelligence, plays a really big role here. For one, it helps firms show clients where their spend is going. BI tools let you break down costs, time spent and the value being delivered in real time, which ultimately builds trust.

I think if you're using transparent pricing models like fixed fees, AFAS, and templates, for example, it's easier to justify the higher rates when you can back it up with with data. There's the issue of profit leakage. Business intelligence tools ultimately help you keep an eye on things like WIP, aged debt, recovery, and if something looks off, you can fix it before it starts eating into your margins.

They're also great for spotting patterns that maybe lead to write offs and lead to bigger discounting. Those patterns, like underestimating scope or not capturing time properly or you've got missing hours, ultimately means you can address those inefficiencies head on. I think when we're thinking about client relationships in general, data driven insights actually strengthen them.

Imagine being able to give your clients regular updates on matter progress, or showing them how their specific cases are performing. It's not just about transparency. It's about showing how you're on top of things. When it comes to incentives, BI tools can really shift the focus away from the billable hour. 

I think firms should start thinking about rewarding things like profitability, collaboration and business development. For example, if a lawyer is collaborating with another team that ultimately helps land a big client or retain one, that should be recognized. Currently in many law firms, this cross collaboration isn't quite measured. And again, collaboration is another big area where business intelligence can help.

It can highlight opportunities for cross selling. Maybe a client working in the corporate team could also benefit from the tax team's expertise. By sharing performance data across teams, you just create more alignment, and you help improve workflows. Ultimately, you know that really benefits the client.

I think business intelligence is really a game changer for business development in many respects. It gives you really deep insights into client behavior, like their billing patterns or how they might kind of respond to certain marketing initiatives.

Ultimately you can even use it to predict client needs and offer proactive solutions, and that's really how you show value and build that trust. So I think with business intelligence, it's really about using data to work smarter, not just to cut costs, but to meet client expectations and strengthen those relationships at the same time. It's it's a win, win.

What strategies should firms adopt to optimize cash flow, enhance billing realization, and align client expectations with sustainable profit models?

The "doom loop" is ultimately the cycle of increasing rates year on year, which is then countered by discounts to retain clients. This happens across every law firm, and very quickly erodes the bottom line profits, with 70% confirming more discounting occurred during the last 12 months, and another 70% expect further discounting next year. Law firms really need to see the real impact this is having to their numbers, and ultimately, they need to see that in real time.

I think if we can empower lawyers with an accurate picture of matter profitability and the impact that discounting behavior has, ultimately that will transform their understanding of commercial business drivers. Leveraging business intelligence tools that support both client engagement and loyal commercial understanding will embed the mindset change that would be vital to support powerful new strategies that preserve law firm profits as the market transitions

How can law firms accelerate the development of a commercial culture that equips all stakeholders with the necessary financial literacy?

Building a more commercially driven mindset outside of the Executive Board members will accelerate your growth strategies over the longer term. I've seen that first hand, that the benefits that this provides across all levels means that partners and fee earners are more aware of which levers they can pull to drive profitability of their matters. Accelerating a commercial culture in law firms starts really with equipping everyone - lawyers, partners, even support staff, with the financial literacy that they need to see the the much bigger picture.

This isn't really just about understanding profitability. It's about fostering a mindset that links their specific daily actions to the firm's broader financial health. For example, ensuring that each trainee receives financial awareness training specific to their role such as the importance of recording a time and ensuring that it's posted to the system within the firm guidelines from day one will be really specific to their role.

Lawyers are often brilliant in their craft, but may not grasp how things like the billable hour, recovery rates, and write offs impact the bottom line. Business Intelligence tools simplify this by turning very abstract financial concepts into actionable insights. Imagine showing a partner how small tweaks to billing or matter scope can directly impact profitability. It really makes the numbers feel real when we talk about metrics like matter profitability and client profitability.

I think this should become a staple in performance reviews. It's a really clear way to connect individual contributions to firm success. So when everyone sees how their role impacts financial outcomes, it fosters accountability and collaboration. For instance, associates might focus more on efficiency, partners on scope management and finance teams on recovery rates. Everyone's really pulling in the same direction.

I think balancing this shift with client expectations for value and transparency is about using the tools to tell a story, and if they see that they're getting value for money and we're being upfront about the efficiency gains or cost savings, that ultimately builds trust.

I think the trick is not making it feel like the race to the bottom with our clients or being overly commercial. I think the goal is to align the firm's financial success with delivering exceptional client outcomes. When everyone in the firm understands the correlation between the two, a profit focused culture starts to take root, and the firm and client can benefit.