Iridium Technology, now part of BigHand, has shared the results of its fourth annual law firm profitability survey in partnership with LawVision. The results reveal a substantial emphasis on profit fundamentals for areas like improving rate performance, utilisation, and leverage.
With the legal industry facing continued associate salary and other inflationary pressures while heading into its new post-pandemic normal, the results are timely and interesting. They highlight a dramatic move away from cost-cutting and large transformational initiatives like service delivery model changes, transformation projects, and Alternative Fee Arrangements.
Instead, to maintain continued growth in the coming year, the findings confirm a focus on the return to profit fundamentals, with greater focus on pricing, utilisation, client focus, and talent.
Some key findings include:
- 66% of respondents said they are focusing on rates and pricing
- 32% are also focusing on utilisation
- 21% are addressing leverage
- 43% of the respondents are introducing new profit metrics
- 43% emphasised client development and hiring lateral talent
For the past two years, firms have been grappling with finding and keeping good people, expanding diversity equity and inclusion, managing compensation against varying practice economics, designing remote working options and raising job satisfaction.
Talent attraction and retention continues to be a top agenda item when it comes to sustained profitability with 35% looking to hire dedicated Pricing roles, and a large uptick in firms looking to add Data Analysts/Scientists and Matter Management Professionals too.
However, when it comes to lawyer talent, 80% of respondents either disagree or are neutral to the statement that they have a plan to address rising talent compensation and profitability. This should be a major red flag: current salary wars will continue or even escalate, and firms that are not proactive in addressing salary issues could be facing a significant loss of talent.
This focus on talent highlights the need to address a holistic, complete financial picture for effective profit management from top-line to net contribution. There is a cultural transition happening with firms moving away from looking only at top-line measures like originations and hours.
With this in mind, the report confirms that information transparency is a critical component of profit success. With a 18.5% increase in the number of respondents now using advanced Business Intelligence platforms – there’s a clear trend in the evolving use of profit applications and visualisation tools with profit metric production, analysis, and delivery.
The findings show that running a profit-centric firm, while still early for many firms, is gradually becoming a familiar part of the lexicon. Process maturity is increasing, and firms are more profit-savvy.
The survey, with responses from 74 law firms across a range of leadership roles including managing partner, COOs, CFOs, directors of finance and pricing chiefs, and covering over 50 questions is a unique, in-depth view of law firm profitability. It includes top-of-mind questions on legal trends such as salary and talent wars, as well as strategic nuts-and-bolts approaches to cost allocation and reporting. With the survey now in its fourth year, many questions also now include four years of data comparison.
To access the full report findings, click here.
And, to register for the survey findings webinar click here.
[ Artificial Lawyer is proud to bring you this sponsored article by BigHand. ]