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Capturing time effectively increases profit: the data tells us so

23 February 2017

Barry Wilkinson makes the case for time capture and why it is essential to profitability

Our analysis shows that effectiveness of time capture is the single biggest differentiator between highly profitable and less profitable small- to medium-sized law firms. Firms outside the top 200 consistently recorded significantly fewer than 1,000 chargeable hours per fee-earner per year. In some years, the median has been less than half of fee-earner working time. And we have no idea what they are doing with the rest of the time!

Marginal improvements in time capture can have a huge impact on the bottom line. For instance, in a firm of 40 fee-earners, with an average rate of £150 per hour, working a 220-day year, the extra fee income from recording just one extra unit of time (six minutes) per fee-earner per day would be £132,000 (£150 / 10 x 40 x 220). Input your own numbers to see how much more your firm could be making. And most of this extra income will translate into profit. There are few other measures which achieve the same result.

The problem for many firms is that the decision as to whether time (and thus income) is captured is not made by management, but delegated to the whole body of fee-earners, who obviously have other priorities, such as actually servicing the client’s needs. And many lawyers assume that firms only capture time to monitor them and maximise fee income, and that if a fixed fee is charged, there is no point capturing the time expended.

A large amount of potential income and profit can disappear by default. This is long before any conscious decision is taken to not charge the full amount on a billing guide. By not capturing time efficiently, we leave ourselves open to ‘double discounting’.

More firms now focus on profitability, using modern systems to identify unprofitable client matters and services – but this only works if their data is accurate. The biggest cost to a law firm is its people, so the labour hour is not only a unit of billing, but also the primary unit of operating cost.

If a fee for a matter is fixed, the profit will be determined by the resources (fee-earner time, salary etc) expended in delivering the matter. The more hours are put in, the less profit is made. In the short term, it may be in the fee-earners’ interest to make their work look more profitable by under-recording time, and they may assume that unrecorded time will be swept up in general overheads. But in the longer term, it is absolutely critical that we can quote as accurately as possible for new fixed-fee jobs. There are two ways we can get it wrong: quote too high and not get the job, or quote too low and lose money. If we base our quotes on historic experience of doing similar work, but under-record time now, we will under-quote in future, and perpetuate our losses.

A combination of improving time capture and working constructively to improve efficiencies is the only viable long-term solution.

But do we do this through enforcement or engagement? Improving results through strong-armed enforcement is easier than engaging people. But we can only expect our team to work on continuous improvement in an atmosphere where inefficiencies are viewed as an opportunity for constructive improvement, rather than for blame.

Larger firms can utilise the carrot of partnership to keep fee-earners in line. The incentive of partnership is less compelling in smaller firms, but engaged fee-earners who understand the dynamic can take the initiative and drive the improvement for management. We have had several in-house workshops produce over 100 ideas in one session – some implemented the next day. A reputation for being ‘a great place to work’ will reap rewards in the battle for talent.

A longer version of this article was first published in the January 2017 edition of Managing for Success, the magazine of the Law Management Section

Watch our free video - Smart-size: The drivers of law firm profitability

Tags: business | Time capture

About the author

Barry Wilkinson is a law firm management consultant, author and speaker, and the founder of Wilkinson Read & Partners. He is a member of the Law Management Section committee.

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