Going into a new year, everyone has big goals and big dreams. You want to increase your profits but that can be a scary proposition and it can feel unachievable. Where do you even start?
Luckily, there are some simple steps you can take and you’re likely already bringing in more than you realize. Let me explain.
I’m having a little fun with words here because your “realization rate” is the key to one of the easiest ways you can increase your law firm’s profits. Let’s look at what realization means and how you can improve it.
What is realization rate?
Your realization rate equals the number of billable hours you invoice/the number of hours worked. In other words, how much of the work you and your team are doing is actually getting billed.
Obviously, getting paid for the work you’re doing is crucial to success, but you may be surprised how many hours slip through the cracks. And capturing those hours matters in a big way. Clio’s study shows that growing firms have a realization rate of 90% or higher while shrinking firms are closer to 86%.
So, how do you fix it?
Fix your timekeeping and billing processes!
3 steps to increase realization
The first thing you need to do is start tracking your realization rate. You need to compare your billed hours against the records of hours worked by yourself and your team. Where do you fall in comparison to the Clio study firms?
You need a baseline in order to see the results when you start making changes. Find that number and share it with everyone at your firm. It’s time to form a united front to improve your numbers and boost your profits.
Next, you need to evaluate your timekeeping and billing processes. This is where the leaks happen and where the improvements need to be made. Oftentimes, there’s a disconnect in how you’re tracking hours and how you’re billing.
You’ll want to make sure your time tracking system is connected to your accounting software, so you can directly import billable hours into your invoices. You can use specific law firm software for this, or applications that integrate with an accounting platform like QuickBooks. This step guarantees that you don’t miss out on hours when it comes to invoicing, and you’d be shocked how many firms do!
Finally, you need to hold yourself and your staff accountable for that number. Once you know what your realization rate is and you’ve fixed any technical issues, it’s time to push towards the goal of boosting your rate. You’re all responsible for making sure every hour worked is billed properly. For some, it’s a hands-on job, for others, it’s a monthly review to make sure the realization rate is where it should be.
As a bonus, when you start tracking billable hours more accurately, you can see how many hours are wasted. Are your attorneys putting their time toward billable work? Are you or your staff spending time on tasks that earn you no money and could be done by someone else? This is the next place to start looking for hidden profits, and it’s a gold mine of missed opportunities.