On September 9th, 2014 LMA President Timothy Corcoran, of Corcoran Consulting, presented on “Demystifying Law Firm Finance” to the Rocky Mountain LMA Chapter. Succinctly, Corcoran asserts that lawyers and firms often don’t know how they make money. The long-standing assumption has been that demand for legal services will remain high, and so long as the billable hour can rise year over year, then law firm revenues will also rise. But clients are pushing back against these assumptions and challenging law firms’ basic billing models.
Post hoc, ergo propter hoc.
The Latin phrase translates to “after it, therefore because of it.” According to Corcoran, this sentiment too often captures how lawyers view business success. He cautions that, both today and moving forward, lawyers cannot equate today’s success with yesterday’s business decisions. Should they insist, the result may be disappointing as firms discover, at the end of the race, that their clients have moved the cheese.
Corcoran challenges lawyers and firms to step away from notions that past habits are responsible for present success. In basic business parlance, Corcoran reminds us that, by adhering to the billable hour model, law firms consistently leave money on the table, because the billable hour comes with clearly defined limits, or “our self-imposed revenue cap.”
The Learning Curve Model
Instead of relying on an inherently limiting model (the “RULES” model, which stands for Realization, Utilization, Leverage, Expenses, and Speed of collections), Corcoran advocates that firms:
- actually ask clients what a given service or outcome is worth to them,
- embrace legal project management and be creative in search of leverage, and
- figure out how to deliver said service or outcome at the client’s price through continual process improvement and greater efficiency.
To the extent firms unlock the potential this model represents, they stand to exceed the self-imposed revenue limit that the billable hour brings with it. Corcoran calls this the “learning curve model.” The better that firms become at executing on it, the more effective they will be with their time and resources, and the happier their clients will be with the outcomes and perceived value of their legal services. In this paradigm, Corcoran teaches, lies potential for significant new law firm success.
Corcoran’s presentation goes into considerable detail and includes many more observations and tips. For more information, visit his blog at www.corcoranlawbizblog.com.