Bigger Numbers Have a Bigger Impact
You can slice and dice a P&L in any number of ways, but I find the simplified presentation here helpful
Based on the analysis we did back ~2022/23 in writing The Legal MBA Essentials, we can start with fee income rebased to £100 at the top of the P&L
We can then deduct direct delivery costs, namely the salaries of fee earners and remuneration for fixed share partners
For the typical UK firm, this is roughly £37. Deducted from fee income leaves us with gross profit of £63
Beneath this we spend £15 on salaries for business services (HR, Finance, IT, M&BD etc) and another £23 on non-pay expenditure (mainly rent, IT, BD and insurance, with a long tail of other 'stuff')
Why is this presentation helpful?
Let's answer that question with another
In your firm how much attention is given to managing the numbers above the gross profit line vs those below?
Typically, I see very detailed budgets breaking out the below the gross profit line expenditure with business services directors paying close attention to actual vs budget each and every month and justifying each and every £
But the bigger numbers above the line? Comparatively little
There are still a lot of firms not providing a full P&L to department heads and holding them accountable to managing performance. Instead I see firms managing the more material components of the P&L indirectly via utilisation and realisation metrics
Fee earners directly influence the biggest numbers in the P&L - volume and price when it comes to fee income, and in the the efficient (or otherwise) delivery of the work
There are a bunch of reasons as to why this may be the case, but if you want to see stronger financial performance in your firm I'd give consideration to how much attention is paid to the big numbers at the top of the P&L vs the smaller ones towards the bottom
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