Trends Solo and Small Firms Should Know

Abstract:

Listen to the Lawyerist Podcast as Zack and Joshua Lenon dig into the 2021 Legal Trends Report (LTR) to find out what lawyers across the country are doing well, and what they are doing poorly. Using the data from this year’s and previous LTRs, Joshua informs us of what things small to medium-sized law firms can do to increase their revenue without a commensurate increase in risk.

Topics:

• 3:34 — Joshua explains the Lawyer Funnel, where attorneys reduce the client’s bill multiple times prior to the client even seeing it.
• 10:16 — How some lawyers have automated, or delegated tasks in order to realize over $40,000 more in revenue.
• 16:12 — Client expectations of how they interact with their lawyers is significantly changing.
• 18:26 — Strategic spending and calculation return on your law firm investments.
• 25:39 — Constant iteration is a simple path toward making significant changes.

Speakers

Episode Transcript

Transcript automatically created.

Lawyerist Announcer (00:00):

Welcome to the Lawyerist podcast, a series of discussions with entrepreneurs and innovators about building a successful law practice in today’s challenging and constantly changing legal market. Lawyerist supports attorneys, building client centered and future oriented law firms through community content and coaching both online and through the Lawyerist lab. And now here are the co-authors of the small firm roadmap and your podcast host.

Zack Glaser (00:36):

Hey y’all I’m Zach Glaser, our legal tech advisor here at Lawyerist. And this is episode 367 of the lawyers podcast. Today we’re doing something a little bit different. We’re introducing sponsored podcast episodes where we’ll be joined by a legal voice or company and discuss the newest features, happenings and trends in the legal world. We’re excited to offer these episodes to our audience, and we hope you’ll enjoy. Today I’m joined by Clio and we’ll be talking about the legal trends report with Joshua Lenon.

Josua Lenon (01:05):

Hi, I’m Joshua Lenon, lawyer and residents at Clio. I’m a licensed attorney in New York certified privacy professional. I’ve been a part of various task force on the future of the legal profession, including the ABAs pandemic response task force ran my own practicing immigration for, and today I’m here to talk to you about Clio’s legal trends report.

Zack Glaser (01:27):

So Joshua, I think the obvious question is what is the legal trends report? It’s it’s been out for a while. I think people hear that name a bunch. They’ve seen a lot of numbers from it. What is it? What does it have? Where do you get the information? All that stuff.

Josua Lenon (01:40):

The Clio legal trends report is, is actually an annual report. We put on a new version every year. That takes a look at a pretty unique data set. And that is the voluntarily contributed data from hundreds of thousands of law firms in the United States that use Clio. So I, I have to give a lot of clarification there due to both contractual and technical constraints. Clio cannot see the data inside the law firm’s client files. We don’t know who your clients are. We don’t want to know that is your data. But what we can see is data on how lawyers are using Clio, the tool. The example I like to give is billable hourly rates. We can see that one lawyer on one end of a bell curve is charging $20 an hour. And a lawyer at another end of a bell curve is charging $2,000 an hour.

Josua Lenon (02:34):

I can’t tell you which lawyer, which is billing, which right, but I know that Clio, the tool has to be able to support both those extremes and all of various billable, hourly rates in between. And from that we get a bell curve. I can tell you what’s most common between those two extremes. And from that, I can derive a lot of information. I can tell you what the average hourly rate for a lawyer is across the United States, close to $300 an hour. I can tell you what the average hourly rate for a non-lawyer as billed through Clio is that’s closer to $120 an hour. I can tell you how much those have grown over the life cycle of Clio with lawyers regularly outpacing the consumer price index. Whereas the billable hourly rate for non-lawyers remain flat. Hmm. And I can break that data down even further by approximately 40 different practice areas that we’ve defined within Clio and take a look and compare all of that data between states.

Josua Lenon (03:34):

So I can tell you what a family law lawyer on average is charging in New York versus what they’re charging in Iowa. Now all of this is from aggregated anonymized data. So again, I can’t tell you which law firm, right? And I can’t tell you which lawyer, but I can tell you these broad trends and we’ve been publishing them ever since 2016, where we dropped our, our first and probably biggest bombshell, which we call the, a lawyer funnel. The lawyer funnel is the idea that lawyers work really hard, but our data is telling us there’s a mismatching outcomes from all that effort. Okay. On average. And we’ve done extensive surveys on this lawyers work about eight hours a day, some days more, some weeks more, but it averages out to about eight hours a day. And what we found is the average solo, small and medium sized law firm in the United States is only billing about 2.2 to 2.3 hours per day, per lawyer.

Josua Lenon (04:32):

Wow. Out of an eight hour day, close to six hours of their day is being spent on nonbillable work. Administrative work technology can figuration licensing, business development. A lot of which is necessary, but it’s taking them away from being a lawyer. And we call that the utilization rate. And below that we saw something even that’s also equally upsetting of those 2.2 to 2.3 hours a day that a law firm bills, the lawyers are actually giving themselves a haircut. A and they’re cutting off part of that bill before they send it to a client. And so the client themselves are only seeing an invoice of about two hours a day on average

Zack Glaser (05:12):

Their clients collectively. Yeah.

Josua Lenon (05:14):

Clients collectively. Yeah. And then the clients collectively are coming back. What we call the collection rate, which is they’re only paid about 1.8 hours of that bill. So lawyers are, are on a treadmill running as fast as they can for eight hours a day and getting paid for less than two hours work every day. That’s what our 2016 legal trends reporter showed us.

Zack Glaser (05:38):

And Joshua, I, I remember seeing this in 2016, I was at, I was in a CLE and it’s kind of mind blowing in a sense. And I, I don’t really use that lightly. It kind of shattered some glass for me because you look at your own rates and you look at your clients and you think, okay, well, my rate is $250 an hour. Let’s use something. Well, let’s use the average $300 an hour. And you think, man, somebody’s paying me $300 for an hour worth of work. And you know, that that you’re worth it, but you then cut it down and then they cut it down. And all of a sudden, you’re, you’re charging too little for your time for your work. And it’s, it’s a bad habit that we get into. And so I like that you guys have put that out there, but more importantly, with the legal trends report, y’all have been asking, well, why are we doing that? And what can we do to affect that as lawyers as well?

Josua Lenon (06:33):

Yeah. One of the things that I’ve discovered as a lawyer working with big data set is data often raises more questions than answers. Yeah. Like we looked at what’s the average amount of lawyer bills a day. That’s a, a simple data question to kind of ask. Yeah. And then when we got this shockingly low answer, it left us with one question. Why, why is it that way? Yeah. And a lot of our research since 2016, it’s been delving into various aspects of this. And to do that, we’ve been actually supplementing the data sets with extensive surveys of thousands of lawyers and thousands of legal consumers. So clients as well as people who, who could be clients, but maybe aren’t okay about why they’re, they’re making some of the choices that they’re making. How do they respond to what the data’s telling us and see if it’s plausible or are farfetched. And what’s really interesting is a lot of lawyers are looking at that 2.3 hours cut down to 1.8 and they’re like, oh yeah, absolutely. That happens every day at my firm. When we ask why, why are you writing down your own bills before the client even sees them? The most common response was that of empathy. They just felt, yeah. You know what? It, it just looked like too big, a number. Yeah. For my clients, the problem with that is the clients are gonna push back. It seems like no matter what,

Zack Glaser (07:50):

Yeah. That makes sense.

Josua Lenon (07:52):

Why are you doing that pushback for them and then potentially creating a greater loss and an unsustainable cycle on behalf of your clients. So there are a couple ways that we’ve looked at how to address this. Well, there are kind of two answers to why are lawyers billing so little? Is there not enough work or is there too much other non-billable work, that’s taking them away. And we found that the latter there’s too much non-billable work seems to be part of the problem. Like everybody’s always wanting more clients. I’m not gonna dismiss that. Right. But once they have those clients, lawyers tend to either be putt themselves entirely to working on behalf of those clients, to the exclusion of their law firm, or they then enter, uh, this piece to a famine kind of stage where they’re like, oh no, now I have no clients, what am I gonna do? I need business. Right. And that tells me that there’s kind of an unsustainable mix between being a lawyer and running a law firm. If you can’t find a way to balance those two.

Zack Glaser (08:56):

Yeah. And I think we feel that, like, I think, I think every lawyer out there who, who runs their firm feels that and looks at that two hours to eight hours. And they know where that, where that time is. They know that it’s in their office, it’s working on their business. And again, like you said, if you don’t do that, then you’re not gonna have any clients to, uh, be working with. But obviously from these numbers, that’s problematic.

Josua Lenon (09:19):

Yeah. And so what we’ve started to take a look at is the idea of a client centered experience. We’ve been getting feedback from clients and those people who decided not to become clients on what they’re looking for when working with a lawyer and interestingly, especially with it has been changing. Yeah. From that, we’ve been able to see with this, I think really amazing longitudinal study, what law firms are kind of bucking the trend when it comes to being unable, to focus on being a lawyer, what lawyers have found a way around that. And this actually came up in our 20, 20 legal trends report, our 2019 and 2020, we’ve been taking a look at this and it’s a longitudinal study over law firms that have been using Clio for five plus years and seeing who’s growing and who’s not. And the biggest area of growth that was most surprising was that of revenue.

Zack Glaser (10:16):

Okay.

Josua Lenon (10:16):

Given the lawyers bill for time, we often think I’ve maxed out my current clients. So the only way for me to get more revenue is to get either more clients or more lawyers, more timekeepers. And that’s how I get more revenue into the firm. And what we found is there’s a group of law firms that have been growing over the past five years that have not been growing practice areas, number of clients, or number of timekeepers to the same degree that they’ve been growing, revenue revenues, outpaces them over five years. They’ve doubled their revenue while barely increasing the amount of clients, practice areas or lawyers that are a part of the firm. And we asked ourselves, why is, is that? And what it turned out was they were able to just find more billable hours to work without losing the rest of the business. So they took those administrative tasks that were taking time away from being a lawyer.

Josua Lenon (11:12):

And they found a way to automate or delegate those, not a huge amount, but enough. They were able to double revenue at their firm, their utilization rates remember that part of the eight hour a day that you can work. It went from 28% of their day was spent unbillable activities to 33% of their day, just a third of their day. Yeah. But it was enough to double revenue at their firm. And we actually found out there were three key technologies that seemed to greatly impact that the first was having some type of client intake tool where clients could enter their own information, start the data process of being a client. Right? Yeah. The selection process of a lawyer that had a really big impact, the next was having a client portal, which is where once they become a client, there’s a place for them to share documents, to share messages, to see calendars related to their cases, things like that. Yeah. And the last was having online payments, the ability for clients to pay online, each of those contributed, uh, a significant amount to a law firm’s bottom line, right? And when you combined the three of them, it was over $40,000 in additional revenue per lawyer per year. If you were a, so lawyer, it was over $50,000 in additional revenue.

Zack Glaser (12:38):

That is an amount of money. I’m sure that very few small to medium size law firms would, would scoff at. And the thing in there, like I see the automation, I see the, the intake being automated, obvious. I’m gonna gain time there, the client being able to see their portal. So I’m gonna gain some time there because I’m not having to do something and then making it easy for them to pay. Well, I’m gonna, it’s gonna be easier for them to pay. They’re gonna, they’re gonna pay more. But the thing that, that is kind of in there that I think needs to be teased out is I imagine, you know, the, the utilization rate they’re taking less of a haircut. They’re probably docking themselves less as well. And the question to me is why, why do those people feel like they don’t have to dock their amount on the front end as much?

Josua Lenon (13:30):

I think they’re finding that their clients are satisfied and that’s creating a virtuous cycle now. So we had this, unfortunately not virtuous cycle of the haircut, right? I’m working too hard. My clients are dissatisfied. I’m writing my bill down. And once you create these systems where clients can kind of carry a bit of the load themselves, which they often wanna do anyway, right. It creates a virtuous cycle where my clients aren’t, but me saying, Hey, why can’t I find this information? Clients are coming to me via my website. My bills are getting paid. We found with online payments, the average bill was paid within, what was it? 60% of the bills were paid within the first 24 hours of the client receiving them. Oh wow. Which in the legal industry is unheard of. Um, these send them an email with a little button that says, click here to pay this invoice.

Josua Lenon (14:18):

And they do. Yeah. And when you realize how easy that was, then you can use technology to then go after the 40% that didn’t pay it in the first 24 hours. Like, Hey, your, your bill is coming due just to jump a reminder, Hey, your bill is past due click here to it. Now all of these things can be done by technology for you and improve your firm’s bottom line. And it creates an experience for the clients where it’s not one of exasperation, but one of mutual collaboration. Yeah. And when that happens, why would you keep yourself a haircut? You’re doing things that make your clients happy that advance their legal means. Right. That give them a resource that they never had before. So I, I agree. It’s definitely a virtuous cycle that we’re starting to see here.

Zack Glaser (15:09):

Yeah. And you’re getting some feedback from your clients as well. A client pays you within 24 hours. They must be happy. That’s fantastic. Yeah. This is great. From my perspective, I, when I practiced, I was a debt collections attorney mm. Or creditors’ rights as we, as we churched it up sometimes.

Josua Lenon (15:24):

Yeah.

Zack Glaser (15:25):

And I found most people want to pay. If you make it easy for people to pay, whether they’re a debtor or a client or whatever it is, the easier it is for them to pay, the more likely they are to do that.

Josua Lenon (15:38):

Yeah. It actually creates a real impact. One of the interesting things from the 2021 legal trends report, our most recent one is we’re finding that there’s a shift in business. Hmm. So firms that have the ability for clients to be, Hey online are actually starting to get more cases on average every month than firms. That don’t right. So there’s this migration towards these firms that are making it a good client experience.

Zack Glaser (16:05):

So people are expecting to see that type of thing, that type of interaction, the clients are recognizing it.

Josua Lenon (16:12):

It goes even beyond that. So what we found, I mentioned this before is there’s a shift in client expectations in the 2021 legal trends report. We actually went back and looked at some questions. We asked in 2018 about how do clients like to interact with lawyers? Is it by phone? Is it by email? Do they wanna go to the office, et cetera, et cetera. And the, the shocking thing in the 2018 one, is we asked that same question to lawyers. How do your clients want to interact with you? And there was this huge mismatch, uh, lawyers believed everybody wanted to come to their office. Clients really just wanted to get on the phone at most. Right. Uh, and then we fast forward to 2021, all the huge changes that have happened in the last couple of years. And what we found is in 2018, maybe 20 to 30% of clients wanted some type of remote experience options.

Josua Lenon (17:04):

Now it’s 78%. They think there should be video conferencing. There should have websites where they can upload documents or share between themselves and their lawyers. Right? Uh, they want the ability to pay their bills online. In fact, it is by far and away the most preferred method. And it’s just this change that’s happened in a near number of years, having some type of online portion to your law firm is now table stakes. And every generat because we broke, we broke the data down that way from baby boomers on down every generation, the majority of clients out there expect some type of remote option and a good junk actually prefer remote only options, even too. So that’s been a big change that we noticed in the last two years. And we think it’s going to be a lasting one.

Zack Glaser (17:53):

And I, I wanna highlight those numbers. You said 20%, some odd in 2018. And now after the pandemic, this last one, the 20, 21 70 something percent.

Josua Lenon (18:05):

Yeah. We went, uh, I just pulled it up. We went from 23%, 2018 to 79% in 2021.

Zack Glaser (18:13):

Yeah. That’s not a blip. That’s gonna be sustained.

Josua Lenon (18:15):

Yeah. That’s a threefold increase. Yeah.

Zack Glaser (18:17):

Yeah. So how do lawyers do that? I mean, how do they, how do they get these table stakes? What are the things they need to be doing to grab those clients?

Josua Lenon (18:26):

Well, I think that’s where the second bit of research that we did in the 2021 legal terms report comes in. What’s very interesting to me is we asked like, how comfortable do you think your law school prepared you in running a business? And only 7% of lawyers believe law school prepared them to run a law firm.

Zack Glaser (18:45):

Oh, that tracks.

Josua Lenon (18:46):

Yeah. Yeah. Right. But there are a lot of lawyers who are doing it. And so we, we delved in even further than that. And what we found is only 42% of attorneys who should know the figures for their number. So like managing partners, solo attorneys, like people in the leadership of their firms, only 42% of them had confidence, the knowledge of their firm spending yeah. Of that same group. Right. In which only 42% were confident, 80% told us they were spending strategically, that’s a mismatch. I don’t know what we’re spending, but I know we’re doing it well,

Zack Glaser (19:25):

But we’re doing yeah. So we’re, we’re doing good.

Josua Lenon (19:28):

No. And I think this is where hopefully the listeners to the podcast really start thinking about what are our strategic priorities, both as a law firm and as a legal service provider. Is it that I just wanna keep on this treadmill or is it some other outcome that I’m aiming for on behalf of us and our clients. Right. And how do they get there is, is kind of the next we’ve gone from now. The why to the, how is what the legal trans report is really starting to ask a lot of the time.

Zack Glaser (20:00):

Yeah. Well, so how do they get there? This makes me think reports course, but I, I believe it’s gotta be beyond that. So it, what does it mean for them?

Josua Lenon (20:09):

Well, I think a good chunk of it is actually starting to break down your spending and figuring out what is effective. What, what gives you, what’s called a return on investment. And I highlighted the three that we found were really impactful, right? Uh, the client intake, the client portals, the online payments, but there’s so much more of that law firm spend on. And so one of the things we did this year was we asked the question, if you had any $5,000 in funds, where would you spend it? And we found something really interesting. And that is what law firms used to really spend a lot of money on outside of salaries, which is normally the biggest expense for a law firm, right. Is real estate. Yeah. You want the nice office, the nice conference room, the, the wall of books behind you. Right.

Zack Glaser (20:57):

Well, we’re trying to impress our clients. Right?

Josua Lenon (20:59):

All of these things we’re considered necessary. Right. It was part of an image of being a lawyer. And what we found in the 2021 is that given 5,000 in funds, less than 30% of lawyers would invest in their real estate. Hmm. The two biggest places for spending were practice management software, which sounds a little self-serving, that’s what Clio does. But, uh, over 60% picked that. Yeah. Uh, and the next highest was investment in hardware for their firm. Just making sure everybody has the best. Yeah. And then beyond that was adding more to their marketing website and their domain. Right. And so lawyers are starting to shift away from a law firm being a place to a law firm being a service. Yes. And if that sounds really familiar to anybody, it’s probably because they Richard Suskin and his book, the future of courts. Yeah. Use something very similar.

Josua Lenon (21:52):

Is court a place or a service. Yeah. And now I think law firms are asking that exact same question, right. Am I a law office or am I a law firm? And how do I, how do I shift myself that way? Right. And so I believe this is gonna lead to a more strategic investment in agile solutions. And what do I mean by agile? I mean, solutions that work independent of location. So if I wanna work at home, I can access everything. If my clients don’t wanna come to my office, I can still communicate with them. If I wanna hire a Paralegal who lives in a small town in my state, rather than like in the same city as me, that I have the ability to provision that paralegal with the tools that they need safely and securely. Right? All of these are now options.

Josua Lenon (22:44):

That law firms hadn’t really been concerned in the past, in fact were even starting to see certain state jurisdictions, take a look at the idea of non-resident lawyers or the non-resident law firm. I have a lawyer that lived in New York city and now because of the pandemic have moved to some cabin in Montana and are practicing law. How does the Montana state bar feel about that? Right? These are the questions being asked, but the, the flexibility and agility to do these things are where I think lawyers are starting to do their strategic investments. So what keeps my law firm agile? What gives my clients a great collaborative client-centered experience? And then everything else will be secondary if I have have a nice office. Great. But if I don’t need it, then I’m not gonna spend on it.

Zack Glaser (23:34):

Yeah. And the, the nice office. Okay. Well, let’s think of that in terms of the client experience.

Josua Lenon (23:39):

Yeah.

Zack Glaser (23:40):

You know, instead of thinking of it as the table stakes, well, the table stakes have changed. We’re talking about a client experience. If the nice office is part of that fine, you know, but think about it, get your numbers, get some reports, figure out what your ROI is on, on these things. And I think that speaks to why the law practice management software is the first thing that you hear people say that they would get is because that’s how we collect our data as attorneys. You know, you guys are able to collect a lot of aggregated data and give a lot of information about us in our practices. But using that for ourselves, we can collect a lot of internal data on our own stuff and then run reports. Oh yeah. And know where to spend.

Josua Lenon (24:23):

Yeah. Interestingly, um, those three, we call them key performance indicators, the utilization rate. How many hours in a day are you billing the realization rate? How many of those billable hours are you invoicing? And then lastly, the collection rate, we ended up just building those as dashboards in Clio. Yeah. Because we found that they were so important to the numbers that we were publishing the legal trends report that our customers turned it around and said, Hey, that’s great. We know the industry average what’s mine. Yeah. And that was great feedback. And so we ended up building dashboards internally. So a firm can look at how do they compare against their state or national benchmarks and make informed decisions because of that.

Zack Glaser (25:04):

Right. Right. Well, so obviously the legal trend support has a ton of information in it. And honestly, the thing I didn’t know previously was the idea of looking at each LTR individually each year, and being able to kind of see some trends in that. And I think that Clio is obviously keeping track of that. But if we were to say, what are some things that people could, some actionable things that they could do right now related to these findings related to making their business a better place tomorrow or the next day? What would you say they do?

Josua Lenon (25:39):

I think the first thing is to realize that it’s small steps. When we talked about the firms that doubled their revenue, they didn’t go out and take on all whole lot of extra things, but they had this really small, incremental improvement over a period of five years. Their utilization rate, as I said, went from 28 to 33, not a really huge change, just 5%, but that small incremental change was enough. So don’t feel like you have to like scrap your law firm, redo everything, but said, it’s take a look at something that’s either frustrating you about your clients or something your clients have expressed frustration with you about. Right. Yeah. And figuring out a way to tackle that. One thing, if you’re frustrated that your clients aren’t paying their bills fast enough, well, is there a better way to handle that right. And make it easier for, with you and the client or if the client has given you a bad review on Google business, for example, because they never hear from you.

Josua Lenon (26:37):

Well, maybe it’s time for you to take a look at a virtual assistant, somebody who can answer your phones for you. So doesn’t go to voicemail and make sure, you know, what messages are, or take a look at a scheduling tool where clients can book time with you so that you know, when to be available for them rather than the random call at like Friday at 5:00 PM. Uh, these are just little tiny things that you can implement that take that one frustration point of interaction between you and your client and turn it into a positive experience. Once you tackle that one point, then you can expand it. Right, right. And create that incremental change that will improve. I also think this is a pretty strategic way to go about it. Yeah. And that’s, again, what we saw is that 2% of, of, of lawyers who should know what their firm spending money on just don’t. Yeah. And so this way you aren’t rushing out and buying the biggest shiniest thing that has a tons of bells and whistles, but instead, really targeting what’s going to work for you or quickly discover if it doesn’t and stop spending on it, uh, rather than commit yourself to like a three year contract with anything don’t go that route.

Zack Glaser (27:48):

Right. Right. Yeah. That, that constant iteration, the small steps moving forward. Well, Joshua, this was very informative. Thank you for, for walking us through, you know, what the Clio trends report is, what it says this year and, and has said previously, I, I really appreciate your, uh, your help with this. And I, I know our listeners are gonna get a lot out of this.

Josua Lenon (28:09):

Thanks. I really invite everyone to come and download their own copy. It’s available for free at clio.com/ltr which is our short hand for legal trends report.

Zack Glaser (28:20):

Sounds good. Thank you again.

Josua Lenon (28:22):

Thank you, Zack.

Lawyerist Announcer (28:23):

The Lawyerist podcast is produced by Bailey Tiller and edited by Britany Felix. Are you ready to implement the ideas we discussed here into your practice? Wondering what to do next? Here are your first few steps. First, if you haven’t read the small firm roadmap yet, grab the first chapter for free at lawyers.com/book. Looking for help beyond the book. Let’s chat about whether our coaching can are right for you. Head to lawyerist.com/coaching to schedule a 15 minute call with our community manager. The views expressed by the participants are their own and not endorsed by the legal talk network. Nothing said this podcast is legal advice for you.

Last updated August 30th, 2023