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Cutting costs? What worked in 2008 won’t work today

When money is tight, firm administrators start rushing to make decisions to save the bottom line, perhaps relying on strategies that saw the firm through the recession.

But hold on, cautions Peter A. Giuliani of Smock Law Firm Consultants in Weston, CT. These decisions have to be made with long-term survival in mind. And the cost-cutting approaches that worked for firms during the recession are not necessarily applicable now.

There are five areas that warrant special care: rates, marketing, technology, downsizing, and recruiting.

Here’s Giuliani’s advice on how to handle these areas in today’s economy.

1. Raise the rates

First are the rates: Do you raise them? Lower them? Freeze them?

According to Giuliani, it’s okay to raise them—a bit.

“The days of easy 5% annual hikes are over for most firms. But clients have finally relaxed some of the rate pressure,” says Giuliani. “Many firms have not raised rates in the past five years. They are now asking for modest increases and are getting them, but generally only in line with overall inflation.”

During the recession, clients took a hard look at the cost effectiveness of their lawyers. They stopped buying the argument that they should pay more because a firm is large and provides better or more service.

“Now the focus seems to be shifting to the overall fee and the clients’ perspective of value received,” says Giuliani. “Both clients and law firms are getting better at managing matters to better align value and fee. This is a direct result of the recession’s effect on rate hikes.”

2. Refocus your marketing efforts

Next is the marketing: Do we increase it? Decrease it?

The answer is: change it.

“There is still a certain amount of money firms need to spend on basic branding,” says Giuliani. “With the decreasing relevance of the old directories, like Martindale, clients increasingly use web searches to find law firms and learn more about them. That said, the firm website doesn’t need a lot of glitz. It just needs to steer clients quickly to the information they are looking for. “

Giuliani also recommends you get rid of the money sponges such as public relations and expensive brochures. Instead, write articles for trade publications, speak at seminars, and focus on indirect, face-to-face marketing.

Meet with individual clients and referral sources. Ask them about trends in their industries and how the firm can make their businesses more profitable. The only investment there is an hour of two of time. And the effort pays off.

“The best marketing device is a short visit from someone who has done a lot of homework to understand what the client or prospect actually needs. Focusing on what law firms have to sell is wrong-headed. The trick is to anticipate what the client needs.”

Face-to-face marketing is no-miss marketing, says Giuliani. “Even if it doesn’t bring in new business immediately, it solidifies the existing relationships.”

3. Embrace legal technology

In the past, law firms were wary of spending money of technology. But this is no longer an area to be thrifty. In fact, the right legal technology can be essential for a healthy bottom line.

“Technology investment among law firms is booming—and finally for the right reasons,” says Giuliani. “Firms are investing in technology that improves project management (i.e., getting the job done), pipeline management (i.e., keeping work moving through the system), data security (often mandated by clients), and discovery management (often a profit center for firms that handle large-document cases). These are all necessary investments, and they are worthwhile because they are all aimed at enhancing client service. It’s best not to underinvest in this area.”

4. Downsize strategically

Next are layoffs.

“To be done right, layoffs take real management courage,” says Giuliani.

The place to start is with the timekeepers who haven’t been bringing in a profit. And that’s not just the paralegal staff; it’s the associates as well. And even more important, it’s the partners.

Previously, instead of culling the poor performers at all levels, many large firms simply fired whole classes of associates they had hired two years earlier. But firms learned a lot during the last recession.

“Lots of firms have finally come to the conclusion that all levels need to be adjusted to weed out—or at least not overpay—declining practices. Hence, we have had ‘de-equitization’ of partners, early retirement offers, and other developments at the partner level.”

5. Spend more on retaining than recruiting

Finally, there’s recruiting. Pare it down, says Giuliani.

“Law schools are coming under significant pressure and criticism for over-hyping the value of a law degree. Enrollments are off and hiring is still weaker than before the recession. The best advice is to continue modest hiring, but be much more selective.”

Don’t cast a wide net to bring in a lot of fish to choose from. That wide net is too expensive to maintain. Be selective. Identify what elements will make a successful associate and bring in only the candidates who meet those criteria.

“Instead of parties and events, recruitment money is better invested in training associates not only in the practice of law, but also helping them to understand the basics of the firms’ clients’ businesses,” says Giuliani.”

“Try to find really good ‘keepers’ in whom you can invest and who will stay with the firm. Invest money and time in training and career development. Millennials want to feel that the firm is invested in their futures. Only then will they invest in the firm’s future.”

Final word

“A lot has happened since the recession,” says Giuliani. “Law firms are finally ‘getting it.’ Precedent and tradition are being replaced by cautious innovation and experimentation with new delivery methods. Now if firms could only stop seeking the Grail of the billable-hour. Billable hours measure input (effort) not results (value). They are a singularly inefficient basis for fee setting. That said, they will remain the norm until in-house law departments and claims offices come up with an alternative. Law firms will not embrace alternatives willingly. They must be guided by clients who have figured out how legal budgets should be spent.”

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