This is the second installment in this series of blog posts, in which we will use Peer Monitor data to examine the characteristics of firms with consistent topline growth over the past few years. In this installment, we continue with our discussion of law firms with consistent revenue per lawyer (RPL) growth. Those firms that had RPL growth outpacing inflation in both years will be referred to as “Both” firms. Firms who’s RPL growth did not outpace inflation in either year will be referred to as “Neither” firms.
As we go along in our everyday lives, we are constantly receiving information that either affirms what we perceive and know, or catches us off guard. The observation of demand within law firms with consistent topline, or revenue per lawyer (RPL), growth — deemed the Both category for lack of creativity residing in a left-side dominated brain — would fall under the category of ‘a positive affirmation of pre-conceived notions’. For record purposes, I’ll state it anyway: Demand growth was present in the Both firms and lacking in the Neither firms.
At face value — not groundbreaking stuff, but we’re focusing on the value of consistency in this analysis — we can gleam something from the above quarterly look at demand growth between the two populations. Consistency of topline growth isn’t an independent result, it’s a product of consistency in the performance of various components of which it is compiled. The Both firms were able to regularly derive more demand growth (volume) than the average firm in the market over the last few years. These firms were not just generating consistency at the highest level of annual benchmarking, but they were finding growth in six of eight quarters over the last two years, all of which beat the market average over that time period.
The steadiness doesn’t stop there. When analyzing what areas of the Both firms that growth was coming from in the most recent year (2017), the growth was systematically found in all three of the largest practice areas of law that make up 64% of the proportion of demand. Rather than growth in one area driving results, there was an evenness to the contribution of increased demand for the Both firms.
“Your consistency says a lot about your commitment.” — Rasheed Ogunlaru
The insight offered by life coach and author Ogunlaru really does ring true in principle, but it certainly isn’t as easy as that in terms of execution. In the “what have you done for me lately?” world that we live in, it’s getting harder to find the time to implement and stay consistent with strategies. However, sometimes perfection of effort is not required, just the effort is. In this instance, the commitment to growing demand is inherently linked to the willingness to invest steadily in marketing, business development activities and personnel, and the Both firms are certainly doing that. Whether or not everything they are doing is perfect in this regard may be of little consequence; rather, the fact that they are consistently trying (and inevitably failing at times) provides unequivocal learnings and results at best, and at worst, well… consistency — in the message to their partners and to their clients.
While central to it, the push for increased volume of work isn’t all that encompasses firms in the quest for topline growth. The value of that work — still widely signified by the hourly rate that law firms receive for their expertise (although that “value” definition is changing quite rapidly) — is imperative as well.
When observing worked rate growth, we find our Both firms again significantly outperformed the Neither group. Both firms average worked rates grew at 3% or greater in every quarter over the last two years. More applicable to our study, however, is the context of that growth relative to inflation. Firms that were able to grow their RPL at a level greater than inflation in both years had an average rate growth above the level of inflation over the entire period observed. Compare that to the Neither firms, whose average worked rates grew slightly below or at inflation for most of the eight quarters in 2016 and 2017.
Eclipsing the level of inflation in worked rates is important to maintaining topline growth due to inevitable losses in realization. Leakage of rates happens at every step, beginning with a rack rate and ending after remediation with the client with what is collected. By being able to consistently increase worked (otherwise known as agreed or negotiated) rates at the front-end with clients, Both firms enter the billing and collection cycles at rate values that help ensure that their final collected value has an opportunity to realize real growth, above and beyond the intrinsic growth in value due to the economic environment.
It’s clear that firms who have shown RPL growth consistently at a level greater than the innate value driven by the general economy, display that same characteristic in the elements that directly correlate to that topline growth. All of which give the impression of a focus on topline growth initiatives.
In the third installment of this series, we’ll round out our analysis by following that topline growth through to see if Both firms are able to reap all the benefits of what they sow.