One lens through which to view a large part of the corpus of business and management literature is that of metrics. Simply consider how much of what’s written consists of discussions about what to measure, what to optimize, and how to enhance all those numbers.
So, in retailing, we have such yardsticks as sales per square foot, same-store sales, sales per employee, inventory turn, store traffic, percent average markdown, and so forth. For cellphone providers it would be customer churn, net customer growth/decline, network reach/coverage and network speed, cost per customer acquisition, and much more.
I could go on: Selling, general, and administrative (SG&A) as a percentage of revenue, new product life cycle speed, relative market share, but you get the idea.
So what do we have in Law Land?
In terms of comparing ourselves firm to firm and not counting inward-facing items such as utilization and realization, basically just four:
- Total topline revenue
- PPP
- Headcount (number of lawyers), and
- Revenue per lawyer (RPL).
Today I want to focus on topline revenue, but a few words about the others first.
Bruce, you have done it again! A recent example is Dell Computer’s revenue for laptops is huge and their profit is so small it is a grain of sand on the beach of technology.
The law firms have been timing the high jump. Measuring raw hours and revenue when as you clearly point out misses the reason to be in business. Great article.
while it’s true law firms are wise to focus on profit – without revenue, there is no chance to do so. The tenor of the piece seems to suggest law firms are effective at generating top-line revenue. They’re not even close to being effective. I don’t believe there’s a single AmLaw 100 law firm with a dedicated sales force. Kent Zimmermann outlined recently on Bloomberg Law why firms ought to emulate the business practices of GE. Well GE has a crack sales force and rewards their sales employees handsomely. What is missing in this analysis and every analysis I ever read about revenue vs profit and efficiency – is a sober assessment of what firms are doing to generate revenue. And frankly, in the AmLaw 100 – there are essentially zero sophisticated efforts aimed at generating top-line revenue. I myself worked in an overseas capacity for an AmLaw 100 law firm sales division that no longer exists. I know from personal, first-hand experience what those efforts do to add 8 figure new, greenfield top-line revenue to an AmLaw 100 law firm. A focus by legal sector consultants like yourself on how firms can generate top-line revenue effectively is long, long overdue. This would save BigLaw. There is no question about it. But firms aren’t going to listen to one lone commentator like myself. It needs more than one. And I’d encourage you to pursue this. I’d be happy to discuss it anytime.
I’d like to suggest, and have sometimes attempted to calculate, a metric that’s related to RPL but seldom used. (I’ve never seen it in print.) It’s profits per lawyer — not profits per partner (PPP), but profits per lawyer (PPL). Take the partner profits, add the associate salaries, and divide by the number of lawyers. The quotient is the average income per lawyer at the firm, without regard to status as an owner or a serf.
It removes the opportunity to game the system that PPP offers, because PPL doesn’t change as lawyers join the partnership or are de-equitized.