Strategy Question of the Month – Profit Drivers

by Sterling on March 15, 2012

Most law firm managers are familiar with the primary drivers of profitability – rates (i.e., the standard price per hour for professionals’ time); productivity (i.e., hours worked and recorded); realization (i.e., ability to collect on production at standard rates); leverage (i.e., the ratio of equity partners to other time keepers); and costs (i.e., salaries, benefits, overhead).

In the 1980’s and 90’s, profit growth at many firms was driven by increasing leverage – coupled with modest rate increases and improved financial management.  In the pre-recession years of the aughts, profit growth was driven largely by rate increases.  The “great recession” led many firms to turn to cost reduction – and many found that there was ample fat to be cut from the cost side of the business.

In addition, the high visibility of the American Lawyer’s AmLaw 200 rankings and their ubiquitous measure of profitability on a per equity partner basis (Profits Per Equity Partner or PPEP) has added a dimension to how many firms manage profitability.  Thus, many firms now also actively manage the denominator of PPEP as part of their respective approaches to profit management.

This month we are examining what firms’ priorities are going forward vis-a-vis profit management. Essentially, we are interested in identifying what profit drivers firm leaders believe offer the best prospects for growing profits over the next few years.  Further, we will look at how those profit drivers correlate to expectations vis-a-vis profit growth over the next few years.

Please take two minutes to complete the survey below.  If for some reason your web browser does not support the embedded survey (i.e., you don’t see it in the window below), click this link and you will be taken directly to the survey in a new tab.  Deadline for responses is midnight on March 24th – results will be published the following week.  Thank you for your help with this month’s survey!

 

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