Realisation Waterfall

I made passing reference to a looking at realisation rates as a waterfall in a comment last week

Thought it worth expanding on

The table below illustrates this concept and is from The Legal MBA Essentials 

It shows how a firm moves from a standard rate, through pricing conversations with the client, through billing and ultimately to cash collected

It shows the write-offs at each stage in italics, and the resulting realisation rate

Note in each case, the realisation rate is calculated with reference to the original standard rate (£300 in the example)

This is important, because it enables a firm to make the following comparisons on a like-for-like basis:

Client Rate Realisation enables meaningful comparison between matters and clients

Billing and Cash Realisation enables meaningful comparison between offices, practice areas or industry/sector groupings

'Realisation' can be a bit of a slippery term, lacking in specificity

When a partner says 'my realisation rate is better than yours', make sure everyone understands what realisation means in this context

Client Rate Realisation may well be better, but if the partner gives hefty discounts at billing or on cash collection their Cash Realisation may not look so rosy

Ultimately, Cash Realisation is the one that counts

But looking at realisation using this waterfall approach helps identify where you're losing money, and you focus efforts on pricing, delivery or billing and cash collections accordingly