Becoming a Cost Center: the Story of Attorney Andrew

image   by Sheila Blackford   ©2016   I get to talk with attorneys who are trying to figure out the best method of increasing business. Should they do a Facebook firm page? Should the try using Google AdWords or try advertising with Yelp! or start a blog, or twitter feed? There are more ways to spend money than to make it. What all lawyers can do is pay attention to what they are spending their money on. A good way to look at expenditures is to view how many hours of work you must spend to pay for this purchase. If you work for a salary, it is easy to calculate your rate of pay. You have your annual salary. You can calculate how your hourly rate of pay from there. If you worked 52 weeks – no time off– then divide your annual salary by 52. If you work 40 hours a week – in your dreams, right?– then divide the weekly salary by 40. What you get is your hourly rate.

This is very different when you work for yourself. You have a billable rate, but you have overhead costs, and you likely do not collect the same amount of money that you bill.  Let me introduce you to Attorney Andrew, admitted to the Oregon State Bar in 2005. Andrew has a billable rate of $200 an hour. He spends six hours working on the Client Carlton matter. He knows he really should have been able to do the work in four hours so he writes the Client Carlton bill down to four hours, $800. Client Carlton is billed $800 and pays $800. There are 10 additional clients billed during the same month totaling $8,400 and is paid only $6,600.

Attorney Andrew’s office rent is $1,200 per month. Allocating 1/12 of the Oregon State Bar annual membership dues equals $46.42; allocating 1/12 of the Professional Liability Fund annual assessment for the basic $300,000 malpractice insurance coverage and additional $50,000 claims expense allowance equals $291.67.

Attorney Andrew’s total gross income is $7,400 for the month. His proportionate expenses are $1,538.09. Attorney Andrew’s net income would be $5,561.91.Will he take the full amount as take home income? Or will he buy more paper and ink for his printer? Or should he save the money as a cushion against any future expenses.

What are Attorney Andrew’s numbers looking like? Attorney Andrew wrote down $200 on the Client Carlton time charges. What amount of time did he write down on the other client matters? If he billed $9,180 but only collected $7,400 then his collection rate for this month was 81%.  $7,400 divided by $9,180 = 81%.  COLLECTION RATE EQUALS THE AMOUNT RECEIVED DIVIDED BY THE AMOUNT BILLED.

But if his time charges entered for the entire month were 60 hours (value = $12,000) and he wrote off 14.10 hours and only billed 45.90 hours (value $9,180), then at his $200 billable rate he was only paid for 37 hours ($7,400). As a result, his realization rate is on 62%. $7,400 divided by $12,000 = 62%. REALIZATION RATE EQUALS THE AMOUNT RECEIVED DIVIDED BY THE VALUE OF TIME RECORDED. 

If you haven’t run screaming from being in front of this blog post, take a look at Attorney Andrew’s net income of $5,561.91. We realize there are other monthly overhead costs besides rent, and 1/12 of the  annual OSB bar membership dues and PLF assessment for malpractice insurance coverage. You can do your own precise calculations with all your numbers. If I told you that Attorney Andrew was somewhat prudent and only paid himself $5,000 gross salary a month, then his gross annual salary is $60,000. Based on 52 week in year, 40 hour work week, Attorney Andrew’s gross hourly rate of pay is $28.85. Considering how proud Attorney Andrew is to have a billable rate of $200 an hour, that gross hourly rate of pay is something else isn’t it?  Well, though painful, it isn’t accurate: don’t forget federal and state taxes and other withholding amounts for social security and medicare that Attorney Andrew must pay. His net pay is not $28.85. It’s less…

For the sake of our sanity, let’s just run with this $28.85 an hour gross hourly rate of pay. Attorney Andrew wants to purchase a new leather sofa long enough to nap on, delivered to his condo from Pottery Barn, he will spend $3,499. Not bad! He better like it because it will take him 121.29 hours to earn the price of that leather sofa based on his $28.85 gross hourly rate. And we won’t talk about the dream car Attorney Andrew is dreaming of buying. It is pretty cool looking for a car.  Okay, I’ll tell you what his dream car is so you can google it and share the dream: the 2016 BMW i8 with a MSRP of $140,700. If Attorney Andrew had a savings account to clean out, it would take 4,876.95 hours based on his $28.85 gross hourly rate to put that baby in his garage. I wonder what his condo cost if it has a garage. Hmm…

So the moral of this story of Attorney Andrew is multi-layered.

  1. Don’t get overly impressed that your billable rate is $200 an hour.
  2. Look at your collectible rate.
  3. Look at your realization rate.
  4. Before falling in love with new furniture and cars, calculate how many hours you will have to work to pay for them.
  5. Before getting more clients, look at how efficiently you are serving the clients you already have.






Who Inspires Your Ideas?

JEL23652-Blackford, Sheila P3 (2)   by Sheila Blackford   ©2010   When you are starting a new venture, you need ideas — lots of them! Who inspires your ideas? Do you have a friend, colleague, or mentor who can plug into what you’re thinking about and help you with the inspiration of new ideas? If so, try to have lunch with this person as soon as you can! Some people just seem to get animated or revved up with good ideas, whether for themselves or others. These are people with high ideation– concept people. They may be very creative, super bright, innovative thinkers, who generate original ideas that are simple and yet profound. They love opportunities to brainstorm, a way to exercise their brain, finding the process of generating ideas energizing.

Thanks to the Internet, you can connect to an idea pipeline shared by these people through their blogs and Twitter posts. Lately I have really been enjoying one in particular, Guy Kowasaki who Tweets under GuyKawasaki and has a great blog Holy Kaw! on his website Alltop. For me, getting a shot of Kawasakism kicks my brain into a more creative mode which helps me brainstorm with lawyers launching their new practice. Thanks, Guy.

Fortunately for all of us, there are a lot of really bright creative people just down the street, across the hall, or a mouse click away. I hope you plan to connect with one of them today. See if you don’t get inspired with some new ideas.

Don’t Let Your Referral Sources Dry Up

JEL23652-Blackford, Sheila P3 (2)  by Sheila Blackford   ©2009   It is very important not to let your referral sources dry up. Referrals dry up when you lose contact, so you should stay in consistent contact. Put together a list of your referral sources and adopt of regular program of contact.

Do you have a written list of your referral sources? Do you categorize your referral sources? You might find it helpful to do so.

Here’s how you might do it:
1. You have your top very important sources of referrals – these are your A list. These are the people who can and do send you good clients.
2. You have other referral sources who only occasionally refer new business to you and these are your B list.
3. Then you have others who are potential sources of referrals but have not yet referred– these are your C list.

The idea is to definitely stay connected with your A list so they don’t drift away, and connected with your B list so they don’t drift away, and connected with your C list so even they don’t drift away. You might come to conclude that a C list person is an A list person your gradually lost contact with or a B list person you ignored. If you don’t stay in touch, your connection begins to weaken. “Where has the time gone?”

Why not call them every 30 days, mail to them every 60 days, and see them every 90 days? I usually encourage the lawyers I work with to do Marketing Breakfasts. Take a different referral source to breakfast once a week or even twice a week. Breakfast is incredibly affordable. Put it into your marketing budget. Best of all, people can usually find time in their week to meet for breakfast at 7 a.m. where trying to find a mutual lunch time free on the calendar can push contacts to back burners.

Collect names of good breakfast spots in the areas close to where your referral sources work or live. Notate some favorite spots on your referral source’s contact card in your Outlook or Rolodex. Lawyers who have adopted this idea tell me that these marketing breakfasts are looked forward to and appreciated by them and their breakfast guest.

Do your referral sources know all the services you provide and the various types of cases you can handle? Do they know you are open to take new clients? It’s nice to be known as busy; it’s nicer to be known as accepting new clients. Consider making a list of services and types of cases you can handle on your letterhead and mailing it with a cover letter that says you welcome new clients and are always grateful for their confidence in referring new clients to you.

Do you know all your referral sources? Some prospective clients let you know who referred them to you. Consider tracking where your new clients come from with a simple question on your new client intake form: “Why did you choose our office?” If you are in need of a new client intake form, you don’t have to reinvent the wheel. The PLF has a sample New Client Information form that can be downloaded — and customized– in Word or WordPerfect in the File Management – New Client Information category of Practice Aids and Forms. All the practice aids and forms can be found at the PLF website under Loss Prevention.

New Year’s Resolution: Don’t let your referral sources dry up.

The Importance of Planning

JEL23652-Blackford, Sheila P3 (2)  by Sheila Blackford   ©2009   I spoke at the The Oregon Minority Lawyers Association (OMLA) and the Multnomah Bar Association (MBA) Hanging Out Your Shingle yesterday with two successful Portland, Oregon solo practitioners, Ken Mitchell-Phillips of Mitchell Phillips Law PC and John Kodachi of John A. Kodachi, PC. Our panel was moderated by Anastasia Yu Meisner, Guyer Meisner, Attorneys, a small firm that has found its sucessful niche in Lake Oswego, Oregon.

We talked about the importance of planning – having a written business plan. Ken shared his great experience with having a written business plan and using it as a guide for staying focused. John stressed how difficult it is for new solo practitioners to juggle wearing different hats and maintaining focus. Both Ken and John keep the business coming in the door by having sound client development plans which include staying connected in their networks.

Have a plan and stay focused by using the plan. Fine tune where you are hoping to end up. Much like having a planned route and adjusting directions to take into account road construction and other barriers to getting to one’s destination on time and not frazzled.

In working with Oregon attorneys gearing up to go out on their own, I stress having a written business plan. It is a big effort to put together a business plan, but worth it. You don’t want to skimp on your business plan and just create some barely helpful document you put in a file and forget. Your business plan should include a Marketing Plan, Management Plan, and Financial Plan. Don’t just keep your plan in your head: write it down. Studies of Harvard School of Business grads have indicated that the focus is sharpened considerably by writing down the plan. Otherwise, it’s too easy to get derailed. For lawyers, trying to run their own firm, there is much coming – fast and frequent– that leads to derailment. I think the Pareto Rule: 80% of your result comes from 20% of your effort sums up things. One lawyer can become exhausted doing 80% of the things that only goes toward 20% of his result. You have to focus on the 20% effort going toward 80% of your result. Being efficient, is doing things right, being effective is doing the right things. Having that written business plan, as Ken shared, will keep you effective.

Can you create your own business plan? Yes. There are lots of resources for business plans. You need to address professional services issues that general retail businesses don’t. I personally think that the resources shared by Dan Pinnington, Director of Toronto’s PracticePRO, a part of LAWPRO, Ontario’s malpractice insurance carrier, are priceless! See PracticePRO for the practice aids for managing the finances of law practice including an excellent Business Plan template. Thanks, Dan and PracticePro.