Best Practice: Boosting personal injury law firm profits

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 5 attorney (all partners) personal injury plaintiff law firm in Central Illinois. We are all working hard, are extremely busy, but we don't seem to be seeing the results of our hard work in our earnings and compensation. We are making hefty marketing investments - in fact we are spending around 6% of revenue on marketing. What are your recommendations on how we can improve our profitability? A. It is hard for me to comment specifically with the limited information that you have provided. There are numerous variables that need to be examined. However, in general terms:

1. How long have your lawyers been in practice? If over 10 years - you ought to be taking home $200,000+. Many lawyers aren't - but if they have tuned and focused their practices they should/could be.
2. Each lawyer should be collecting $300,000+ per year in fees. If not, examine case production hours, quality of cases being accepted, effective rate per hour as well as realization. (Assumes time is being kept on contingency fee cases)
3. Firm's margin should be in the range of 35-45%. (Net Income - excluding owner salaries divided by Gross Fee Revenue)
4. Is the firm (high volume low dollar PI firms) investing 8-10% of fee revenue on marketing? Many high volume PI practices are spending much more.
5. Are you measuring the ROMI (return on marketing investment)? This is critical. Not all marketing investments produce fruit - some fail. You must actively measure, manage, and fine tune marketing programs. Identify those that don't work and kill them. Dashboard reports are crucial. Measure everything - from calls and inquires and where they came from to cases signed up, dumped, etc. and when they are concluded tie the final result back to the original marketing source.
6. Are you leveraging paralegals, case managers, and technology - especially if you are a high volume plaintiff practice?
7. My guess is that overhead and expense is not your primary problem - it usually isn't. But examine your overhead and insure that you are using your resources wisely.
8. Essential in a high volume practice: you need effective marketing to get enough cases (quantity) and you need the infrastructure to properly handle the work (quality).
9. Consider referral fees a marketing cost in addition to other marketing investments - because it is.

John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.