Benchmarking for Profit

 In Practice Management

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Benchmarking for Profit

An increasing number of companies have used benchmarking in recent years to improve company profitability. But can solicitors use it as a tool to increase their profitability in these challenging times?

The answer – a resounding YES!

Many legal firms are already successfully using benchmarking, having overcome the initial inertia of starting such a project. There are a variety of different benchmarking methodologies, but a typical five step process is as follows:

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What are we going to benchmark?

Many activities can be benchmarked, both at overall firm level and at individual level. It is probably most useful to concentrate on the key areas which are likely to improve profitability and customer service. Areas to look at include:

  • Ratios of support staff to fee earners – the ratio has dropped in recent years at many firms, helping increase profitability
  • Chargeable hours – fee earner chargeable hours are a key performance indicator. Maximising hours charged to clients will increase profitability, assuming that the hours are good quality billable hours. In the current economic climate, low individual chargeable hours can also help firms decide on staffing levels. It may be that a particular department can survive without recruiting a new fee earner if existing members of the team increase their own chargeable hours to a more acceptable level.
  • Client satisfaction surveys – it is good practice to monitor client satisfaction levels. These can be monitored against other firms or against an agreed benchmark for the firm itself.

Whatever you chose to benchmark, it is important to be able to measure effectively, and also not to try to benchmark too many things at once.

Who will we benchmark against?

It may be obvious who to benchmark against, although it may be difficult to get the information you would ideally want. It is usually best to benchmark against similar firms, and ideally against firms you respect because you know they are efficient and profitable.

In a larger firm, don’t ignore the possibility of benchmarking between individuals or departments. Why is one individual in the private client team recording 300 more chargeable hours than someone else in the same team? Why does the commercial property team have a much higher ratio of support staff to fee earners compared to the private client team?

Be careful though with internal comparisons – if not handled properly, they can cause internal friction rather than acting as a spur to improved performance.

Where will we get the information from?

The Law Society’s Law Management section produces a benchmarking survey each year, normally published in April. In 2010 185 firms took park and the results were analysed geographically, by specialism and by the size of the firm. The statistics often make fascinating reading and the survey is an invaluable tool for firms who are serious about benchmarking – the data covers key indicators such as fee income per fee earner, lock up in work in progress, salary levels and profits per partner.

However the best information is often obtained by speaking direct to other firms. It may be difficult to do this with firms in your region with whom you compete, but with a little effort you should be able to make contact with a similar firm slightly outside your region where sharing information will not be a problem. One advantage of such comparisons is that entering into a dialogue will often help you determine why some of your own key figures are less favourable than the other firm’s.

How do we analyse the information?

An overall review is usually helpful, but it may make sense to restrict the amount of information being analysed so that you can make meaningful comparisons based on manageable data.

It goes without saying that it is necessary to compare like with like. This can sometimes cause difficulties when reviewing fee earner and support staff data. Firms take different approaches to the classification of individuals as fee earners and support staff and this needs to be taken into account when making comparisons.

How will we use the information?

The point of benchmarking is to improve performance. Carrying out a benchmarking exercise can prove very satisfying or alternatively it may make people defensive if the comparison highlights a need for improvement. Indeed this is one reason why individuals may be reluctant to get involved in a benchmarking exercise at the start.

Whatever the outcome you need to consider action carefully or the time spent benchmarking may be wasted. An action plan should be devised and monitored and the project needs to be run as a realistically achievable challenge.

Benchmarking should ideally be carried out periodically. The business environment for solicitors is changing rapidly, and benchmarking is a way of ensuring that your firm not only keeps up with the competition, but stays a step ahead.


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