I came to law firms about nine years ago after a career in industry. One of the first things to hit me was the fact that some five hours of chargeable work per day was considered to be a sound target. In almost any other commercial arena this would be greeted with amazement. Managers would ask where the missing three hours per day was going. Unless you have worked in law firms for some time and become accustomed to such figures it is quite difficult to understand.

The simple fact is this: We get an awful lot of slippage in most if not all firms, in four key ways in fact.

1) There is slippage between the number of hours the firm pays for and the number worked (but we can move swiftly over this as we all need holidays).
2) There is significant slippage between the number of hours at work and the number recorded as chargeable.
3) More slippage occurs as those chargeable hours are billed, with FEs frequently not billing the actual number of hours recorded on a file.
4) Slippage goes on as billed totals are not collected in cash, with whatever percentage loss we suffer in bad debts.

While 1) is a fact that we cannot and do not even want to change, and 4) is something we have covered elsewhere (see pages Finance–Billing and Finance–Debtors), 2) and 3) here cause by far the most damage and even small changes in them can yield enormous improvements.

And the financial implications are truly enormous. In a modestly-sized firm with, say 20 FEs and total annual billing of £1.8 Million, we are seeing an hourly return per FE based on 5 hours billed per day of some £78. If each and every fee earner could add just 30 minutes to their daily chargeable time the total fees billed would rise by £180,000. This would cost virtually nothing. There might be some additional incentive payments to FEs if you run such schemes and perhaps the need for some additional typing input but as we are talking of only a 10% increase it could only amount to between one and two secretaries – say between £18,000 and 36,000. We could thus see around £150,000 on the bottom line. Split between perhaps five partners? £30,000 per partner! Surely that is worth putting in some effort for.

The first thing is to set up the calculations and some key figures will allow you to understand what is happening. It doesn’t really matter which of these you settle on but keep running records so that you can see trends. Try monitoring these:

1) Billed £ per hour worked. Take bills delivered for the month and divide by the total number of hours worked by that FE in the period. Ignore holidays/sickness as we are looking at productivity while at the office.
2) Billed £ per hour paid for. As 1) but counting all hours 9 - 5 (or whatever times you start and finish). This gives a more commercial figure as it compares the cost to the firm of the FE with the revenue generated.
3) Chargeable hours recorded per day worked – Total hours divided by days spent actually at work. This will probably be close to the five we have talked about.
4) Bills £ per chargeable hour recorded. This shows how well each FE is turning those recorded hours into revenue.

(Some may suggest that you should incorporate changes in WIP balances in these calculations. A FE may have a low month for billing but get through a lot of work and add significantly to their WIP total. This argument has some merit but I prefer to keep the pressure on FEs to bill. We always need cash flow and in any case if FEs are interim billing as they should significant fluctuations in WIP should not occur)

You will see some alarming figures. It is very common to see a fee earner who has a charge out rate of, say £130 per hour recording their five hours per day as chargeable but when analysed using 4) above showing a figure in the £80 to £90 region. You then have to understand why their true recovery is so much lower than their billing rate. If it can be improved, even a little, you will see enormous changes to the bottom line.

We have seen that there are two main factors at work here. The first concerns use of time and the recording of it and the second how effectively that recorded time is billed. Let us look first at the use of time.

Every lawyer has, sometimes, to break off and check facts, do research and so on. They also need a break at regular intervals and stressing them (even more!) will only do damage. But if you can work with them, find out what prevents them from achieving more, and begin to fix that, you will almost certainly achieve a lot. If they are paid under some kind of incentive scheme it will be easier to gain their enthusiasm for such efforts. It needs a co-operative approach in which they feel supported, not criticised, encouraged rather than pressured.

Time recording is a chore. It takes time and real concentration but it can become a habit. Some legal software will do it for you but many still do it in other ways, often dictating and having their secretary enter it on to the system. However it is done is not an issue but the results are. It is absolutely vital that before leaving the office the day’s time record is reviewed and adjusted. It is inevitable that some time spent will have been missed, and, if using an automated system that some might have run over. Every FE must review and correct his or her records while their memory is still fresh and what ever system you use for recording time must allow for this. If every FE does this two things will happen: They will see for themselves how productive they are being and they will record accurately, neither risking over-charging clients nor under-recovering.

So far our approach is fairly low key but we can get just slightly more excited on the subject of conversion. We have already looked at this on the Finance-Billing page and all I would add here is that your FEs must learn to estimate accurately as far as they possibly can, bill accordingly, and bill according to the time recorded. And if they look like over-shooting the estimate given to the client they must be willing to write and explain.

It really needs a change in culture. Many solicitors I meet would honestly prefer it if they didn’t need to charge at all. They enjoy the legal work but feel embarrassed having to charge for it. They need gently educating that this is a business. It must of course justify its fees and give sound value for money but similarly it cannot afford not to charge properly for the work done.