Rob Knowsley
15 November 2017

How to improve law firm profits and prospects for succession via new technology

Published on 15 November 2017

Generating revenue while keeping expenses in check is the operational goal of every firm. Effective strategies around pricing and workflow management are essential to ensuring a firm of any size remains profitable. Insights spoke to consultant Rob Knowsley, head of Knowsley Management Services. Having worked as a barrister, solicitor, government lawyer and managing partner, Rob founded his consultancy in 1988. Since then, Rob has advised 1347 firms throughout New Zealand, Australia and Canada on how to improve profitability and options for succession, which can be quite an issue for partners in many practices.

“Each firm has to be looked at as a unique situation,” said Rob. “Extensive legal practice management experience should help identify where a firm’s greatest upsides are, and how they can be aligned with the firm’s culture and philosophies of practice. Get help from experienced advisers who have a good track record of success with similar firms.”

A failure of planning is the most common mistake most firms make when it comes to practice management.

“Failing to carefully plan what each team member’s fully-rounded contribution can be each year and getting commitment to the logic, reality and consistency of a plan of work is vital,” said Rob. 

“Failure to plan properly means that time budgets and fee budgets are often set without any proper basis – set too high, or sometimes too low. Failure to hit these targets, or reach real potential, is thus almost guaranteed from the outset.” 

“As a result, most firms are not aware of the level of new work needed to create a ‘healthy backlog’ of work consistently across the practice, and that fuels failures in marketing because, even assuming firms knew what to do, they don’t do nearly enough of it.”

Firms often also do not conduct effective marketing to ensure work can be priced at a figure acceptable to clients and valuable to lawyers. This may have significant flow-on effects – lawyers within the firm may not have enough work to meet their annual targets, while firms may find considerable portions of their work underpriced. 

“It is important to price work with sophistication guaranteed,” said Rob. This ensures more work is accounted for in terms of pricing that clients see as very valuable.

“Most law firms undercharge, which will surprise plenty of people,” said Rob. “Applying sensible pricing strategies and tactics will easily add 10% to revenues from existing level of work.

For example, a firm may have $1M in annual revenue, one Principal paid $250,000, and expenses comprising 65% of annual revenue. This may mean the firm only generates $100,000 per annum in genuine profit. To lift this to $200,000, it would only take an extra $100,000 in revenue – driving up profit in the region of 100% after any additional expense.”

Generating an additional $100,000 per annum is often not as significant a challenge as it may initially seem.

“If the firm has present capacity to do more work using existing resources, most can do so by proper resource planning, and proper marketing planning and execution. If the extra production capacity is 10% across just two lawyers, it can generate substantial additional revenue.”

However, Rob cautions against investing too much in what technology can offer.

“Technology is not a silver bullet. It must assist substantially with success in implementing sensible business strategies. Most firms don’t use their practice management systems well,” said Rob. Firms often do not understand what practice management system (PMS) reports they need, fail to generate relevant reporting, and fail to take management action to effectively improve on problem areas identified by PMS reports. 

Digital dictation technology can prove to be a useful aid to improve firm efficiency.

“Even if not used to automate the generation of draft documents, digital dictation greatly enhances productivity when used well, and speeds up turnaround.”

In Rob’s experience, implementing simple and effective improvements to workflow management, marketing, and technology can significantly improve law firm profits.

“More and more firms that generate genuinely good profits have a strong sale value,” noted Rob. In terms of the New Zealand legal profession, generating strong sale value has not been the norm.

“Firms that really understand the capability and critical contribution of their human resources produce much higher revenues per person, and exponentially better profits,” said Rob.


If you're interested in starting your own legal practice, consider studying the College's own Legal Practice Management Course. The College is a leader in providing Legal Practice Management courses and can help you achieve your goal of owning and running your own practice.