5 Ways Your Legal Practice Can Save Money – Whether You’re a Solo Practice or a Larger Firm
By Michael Shapiro |
It probably comes as no surprise that the average total expenses for a law firm accounts for 40% – 49% of gross receipts. But it may surprise you to know that that percentage range is constant whether you’re looking at a solo practice or a larger firm. Furthermore, the general categories that account for the largest regular expenditures are constant regardless of the size of the firm.
In his article on law practice cost cutting, John W. Olmstead states that “many law firms, especially solos, often give [financial management] a low priority on their to do list.” He blames a lack of time and a general lack of understanding when it comes to financial reports, income and cash flow statements.
So, let’s accept the fact that Attorneys are Attorneys and not Accountants and look at cost-cutting basics — low-hanging fruit — that can be considered for any law firm, regardless of size. In 2018, Bloomberglaw.com reported that law firm expenses had increased by almost 5% — in just two years! At that rate, your expenses will more than eat away any increase in billings.
Here are five areas where solo law firms and larger practices can both find monthly savings…
1) Equipment Expenses
The same Altman, Weil study mentioned above reports that the average firm spends approximately 3.0 percent of its gross income, or $7,770 per attorney per year for “equipment expenses.” (Take note that the study is from over a decade ago, so that number is probably even higher today.)
You need to budget for big ticket expenses like travel, equipment repair and replacement, software subscriptions and updates. Many of these are set annual costs that you can do nothing about… but that shouldn’t stop you from shopping the ones you can control. Do you compare airfare or simply stay with the airline you prefer (where you have points and miles). Depending on how much you travel, it’s well worth shopping your flights.
The “little things” can carry a big price, too. Take a peek in the supply closet and you’ll most likely see boxes of pens, dozens of pads of paper, folders, and all the usual supplies you order month after month… whether you need them or not. It sounds so simple, but when was the last time you reviewed monthly supply costs? While you’re reviewing your equipment expenses, take a closer look at your billing in regard to equipment use. For example, one recent article reports that more than 65% of firms don’t charge clients for billable prints. That’s a lot of ink and paper that’s dropping right onto your bottom line, and that’s just the start.
2) Staff Expenses
Your firm’s largest expense, regardless of size, is the expenditure for your staff salary and benefits. Staff expenses across the country average over 15% of a firm’s gross income.* Of course, the knee-jerk response to high-staff costs is simply cutting staff – except reduction in staff is almost always followed by a reduction in service… which leads to a loss of clients. So, what are other ways to trim staff expenses…?
- Consider shifting some staff positions from full-time to freelance — bring them in only when workload is high, and they aren’t an expense when there’s no need for their services.
- Review your benefits — we’re not proposing that you cut essential benefits… but consider polling your employees to see if some current benefits simply aren’t being used.
- Embrace updated technology — it’s so easy to get comfortable with the programs that are always there waiting for you when you turn on your computer, but there are more timesaving (employee saving?) options available every day.
3) Insurance Costs
Put a reminder on your calendar every year to have a conversation with your insurance provider. Your firm changes, staffing changes, and your insurance coverage should change accordingly. Be sure to ask about reduced insurance needs for different practices. You may even get credit for something as simple as having good credit and/or a good payment history.
Make an argument to have your premiums reduced — and if you can’t get a lower rate with your current insurer… shop it. Insurance is an extremely competitive field — as comfortable or close as you might be with your current insurance partner, there’s no reason why you shouldn’t make a couple calls to test the market.
4) Office Space
In the post-COVID world, we’re all aware that firms are working remotely — many have made the switch entirely. While going 100% virtual certainly doesn’t work for all firms, it’s obviously a huge cost saving. You may not know that office space downsizing was already a trend before COVID. Wealth Management recently reported that the change actually started over a decade ago, as analog libraries were replaced by virtual ones. Their report states that the space allotted per attorney dropped form 1,400 sq. feet to about 700 sq. feet… and, today, after COVID, it’s as low as 400 sq. feet. If you haven’t already consolidated space, that should be at the top of your cost-cutting agenda.
One more idea, when looking at your office space, is to consider renting out conference rooms are unused offices. Unused space is an unnecessary expense — one that can easily be flipped form an ongoing expense to a frequent income producer.
5) Outdated Marketing
Too many law firms get stuck spending a large chunk of their marketing expenses on outdated advertising avenues. You should review your advertising annually — what’s working, what’s not? If you’re not already, you should confirm how a new client heard about you. Even if your number one lead source is word of mouth, most consumers today will always research a firm online before contacting one.
Take steps to ensure that your online profile will convert searchers to clients. How do your ratings and reviews look when someone Googles you? Is your information correct everywhere it appears? Something as small as an inconsistent street address can plant the seed of doubt and drive a prospect to another firm. Establish an annual review of your marketing, confirm your top and bottom lead sources, and alter your budget accordingly. Stay on top of changes in digital marketing — while you may not need to be on TikTok, you should be aware of the fact that Instagram has the most engagement of any social media platform (not Facebook) and has the highest marketing ROI.
So to recap… your law firm or solo practice could find quick savings in these five areas:
- Equipment expenses
- Staff expenses
- Insurance costs
- Office Space
- Outdated marketing
And the three ways your law firm might be able to cut staffing costs are:
- Shift some positions to freelance
- Review benefits and discontinue the least popular
- Embrace updated technology
The age of the traditional, extravagant law office has evolved into a leaner, more streamlined legal machine. Make sure your firm is financially optimized to minimize expenses wherever possible… whether you’re a solo attorney or a much larger firm.