The Legal Mini-MBA Fundamentals of Law Firm Finance

We’re wrapping up our Fundamentals of Law Firm Finance live sessions with this term’s Legal Mini-MBA cohorts this week

As a broader observation over the years – it has always struck me as unreasonable to expect lawyers to improve their client/matter or departmental profitability without first ensuring there’s a shared understanding around profit – what it is, how it’s calculated and what levers there are to improve it

And so we deliberately kick things off by covering these concepts to set those foundations before building upon them throughout the rest of the programme

One of the Key Performance Indicators that tends to trigger a couple of lightbulb moments is around realisation rates

We walk through the Realisation Waterfall from our book and illustrated below

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 comparisons on a like-for-like basis between clients/matters and between practice groups/departments within the firm

'Realisation' can be a bit of a slippery term, lacking in specificity and this model helps pin that definition down

It’s also a good analytic tool to start to think about where you might want to focus potential improvement efforts

In the example shown below, I would look for easy wins within that £50 inefficiency write off, before looking at the £30 prompt payment discounts and £20 discounts given up front

Some really interesting conversations over the past couple of weeks and I’m looking forward to seeing some quick wins and ideas come through in our Goal Setting and Strategy sessions, which start next week

Image of The Legal MBA Realisation Waterfall