Avoid These Mistakes Immediately for Your Law Firm’s Growth: A Comprehensive Guide

January 30, 2024

It’s a new year and a great time for law firm owners to refocus on their goals. There’s no denying your desire for increased income and profitability. But where do you start? What strategies could possibly lead to an upswing in your bottom-line figures? Well, the good news is, it’s not as complicated as it may seem. We’ve compiled an expert guide on the three essential actions you should take to bolster your firm’s financial health this year. Grab a cup of coffee, settle in and let’s check out these powerful insights.

Step Number 1: Increase your fees in your law firm this year

There’s no shying away from the fact that increasing your fees can be a daunting task, especially as it might initially result in client pushback. However, understand that an increase in fee isn’t about overcharging clients but rather charging what the quality of your service rightly deserves.

As a law firm owner, you’ve undoubtedly spent years honing your craft, delving deep into the intricacies of law’s complex labyrinth, and relentlessly pursuing the best outcomes for your clients. Such expertise comes with a value that should be aptly reflected in your fees. In fact, clients often associate higher fees with higher service quality, thus clients expecting premier representation typically look for law firms that charge a premium fee.

A critical part of this process is effective communication. Clearly conveying the improvements in client service, the depth of expertise, or the additional benefits that come with the increased fees can help mitigate any initial resistance. Similarly, educating clients about the value of your legal services, the tangible and intangible benefits they gain from them is another aspect to consider when increasing fees.

When it comes to increasing fees, there’s more fear around increasing fees than the reality of increasing fees. Instead of being in your head about it, I want you to take the time to do the simple math. If you charge $50 more an hour, or $1,000 more for a Will (or other legal service), 100% of clients are not going to say no to your increase in fees. Further, 100% of your existing clients are not going to walk away because you decided to charge more money this year. That is a statistical occurrence so rare, that it may be more likely that you would get struck by lightning. 

Next, think about it: if you charge $50 more an hour and bill 1,000 hours (or bill the same number of hours as last year), you will make $50,000 more.

And if you want you can play it safe and assume you will lose 15% in billable hours because of your fee increase, you will still make close to the same because: $300 (old rate) x 1,000 hours = $300,000.

New rate: $350 x 850 hours = $297,500. You’ll make $2,500 less (which is arguably insignifant) because you worked LESS to make the same amount of money as last year. That’s a win in my book.

Play with your numbers and see what happens. Don’t let your fear of increasing fees get the best of you.

Remember, you don’t need to work with every client. Only the clients who understand your value.

Step Number 2: Increase your law firm cash flow by looking at the payment plans you offer

You’re sifting through paperwork and client files, all the while juggling with the uncomfortable reality of unpredictable income fluctuations in your law firm. I want you to readjust and rethink the payment plans you offer to not only increase cash flow but also choose financial stability over uncertainty.

  • According to a 2019 industry report (Clio Legal Trends), offering flexible payment plans can lead to increased client satisfaction, and subsequently, a higher referral rate.

When it comes to increasing your monthly payment plan amounts, understand that how much you collect each month is crucial to your cash flow. I’m not sure why law firms started permitting clients to pay as little as $300 or $500 each month. Look at the example below to see what happens to your cash flow when you accept $500 each month in a payment plan vs. $1,000 each month.

No matter what, you will always have more payment plans than new clients signing up, which is why it’s important to figure out your payment plan financials and how they impact your cash flow. Otherwise, you’ll end up taking on clients for lower rates just to make up your cash flow or working with clients who are not ideal for your practice.

This is especially important for law firms like immigration law firms, criminal law firms, estate planning law firms, and other practice areas that typically offer payment plans or structured payment options to their clients.

In the example below, if you have a small volume practice, you can see how much MORE cash flow you have every single month when you are collecting $1,000 each month as opposed to $500 each month. Intuitively, you might think that “Oh, collecting $2,000 up front is better than $1,000” – yes, that is true, but when you see how it effects your cash flow every month – collecting $1,000 up front and $1,000 each month is a healthier financial choice for your law firm.

Choose what payment plans you create for your law firm carefully, and do this exercise so you can see how the payment plan effects your cash flow. Ask yourself: would you rather make $11,000 each month or $13,000? What is healthier for your law firm, more cash flow or less?

image of law firm profitability and monthly cash flow

In the next example, I want you to see how much this will effect you if you go from 20 active clients who are making payment plan payments to your law firm versus 100+ active clients on a payment plan.