In this presentation, the speaker (representing The Proper Trust) walks law firm leaders through a systematic approach to improving profitability by managing overhead rather than solely chasing more clients. The talk defines overhead as all non‑revenue‑generating expenses, distinguishes fixed costs (rent, utilities, core technology, insurance) from variable costs (salaries, office supplies, marketing), and explains why keeping overhead below 50% of revenue is a key health metric. It then dives into the main cost drivers—office space, staff turnover, wages, and technology—offering concrete tactics: renegotiate or downsize leases, adopt hybrid work to reduce space needs, benchmark salaries and benefits against industry data, streamline hiring, and eliminate “shiny‑object” software redundancies. The speaker highlights the value of benchmarking tools (e.g., Clio Trend Report), a software report card, and a firm‑wide spending policy (using tools like Nivon). Additional recommendations include moving to a paperless office, using templates to reduce repetitive drafting, and regularly tracking key metrics to spot overspending. Throughout, the speaker stresses that strategic cost management, not just cost‑cutting, can unlock significant profit gains, and suggests engaging specialized legal accounting firms for deeper analysis and ongoing guidance.
Chapters
This week we're going to talk about taming the overhead beast, how law firms can boost their profitability. So we all know the equation. It's the first thing we talk about when we set goals with clients and they— we want to raise our goal here, we want to raise our revenue. So we all know the equation is more clients and more cases will equal more revenue. That's simple, simple, right? But what if there are more profitable paths to simplify expanding your caseload. This, this blog post that's attached to this video is going to really dive into even more deeper to the often overlooked world of law firm overhead. So we can look at it from perspective of not just adding and inflating the caseload and adding more work, more revenue that way, but also looking at revenue and how can we strategically manage the costs And to significantly impact the bottom line. So we'll start to break it down here, and we'll go look at the culprits of runaway overhead. And this can happen, especially as these law firms start to grow. You might notice that you've got your rent is just not even manageable. And this is one of the places we've seen a lot where the rent went from one base rate. Maybe you locked in for 5 years, and it really went up, and that has a lot to do with perhaps taxes, property taxes, and the landlord is like, I gotta make up for the 5 years I locked in. But when you start to see that, that's a way that you can look at maybe reducing costs. And you might still need that office lease, but maybe you've got a staff that's not so fixed in coming into the office all the time, and maybe you don't need the size space that you're currently at. Maybe there's a way for you to reduce your rent by reducing the size of your office space, still having the office, but allowing that to be a place that maybe is smaller, and then you shift from remote work to more of a hybrid method of remote work and also working in the office. It's a way to keep employees happy as well, which leads into the next one. This is a place that we see— Sarah and I see a lot at our firm, The Proper Trust. We do see a lot of times we work with attorneys and they've got a high turnover in staff, and staff turnover can be really painful when it comes to overhead and the percentages. Because wages is the top, really the top expense at your firm. And when you start to look at turnover, turnover is a, you know, wages might not all equate to overhead, but when you're looking at the turnover cost, taking and putting an ad in the paper, adding the time to train, work with the staff, learn the ways around the firm, turnover costs can be very, very high. And a lot of times you'll see that that's a place that maybe if you can keep the current employees happy, if you're happy with your staff, Keep them happy. And really what we tend to do is we'll look at industry benchmarks to try to find a way to get you to a place where you're paying your staff the right amount of money, providing them the right amount of benefits so that they might stay with you, because turnover is very, very expensive. And we see that all the time because a lot of times the person doesn't just leave the firm. Maybe a key personnel leaves the firm, but also multiple people leave the firm. They might go to a local firm nearby. And they start to poach the people from your firm. So you don't want that to happen. So we can actually, as a legal bookkeeping company, we can actually look at and analyze the firm's spending habits and help optimize what you're looking at for overhead. So these are things that we, with a legal accounting firm, you can really get that specialization and that targeting of what we should be looking at. What is everybody really spending on wages and overhead? And look at how we can maybe tighten that up and keep that nice and tidy. and help you grow. So sometimes just small changes implemented firm-wide can really help with keeping spending close to the vest. Technology is another place you might look at. Technology can actually help by— you might spend some money on the software, but you might be able to eliminate some of the manual jobs that are happening. Technology and spending it on the right technology can really help your firm grow. You might have a higher level of accuracy when you end up getting that implemented in a firm. I can see my cat has joined my meeting here. It can help you really maybe take some parts of the job off of the plate of your staff and just save time. Even using something as simple as templates in Clio where you're— maybe you see your staff is writing these same documents over and over again. Where you can actually use templated forms and not have to keep reinventing the wheel every single time you take on a case or matter that is, is oftentimes repetitive in your firm. So there are places where routine can be implemented and also places where technology can take and make substantial savings in a healthier and more profitable practice. So let's dial it back a little bit and what actually constitutes overhead in a law firm. So in the legal world, overhead can refer to all of the expenses that keep your firm running smoothly and that aren't directly tied to generating revenue. So any attorney that's bringing in matters and cases, that's your rainmaker, might not be— would not be considered overhead. But something like the accounting services can be considered overhead. But you got to factor in the money that we save your firm, right? So there's 2 ways of looking at this. There's actually 2 expenses that they land in 2 categories. The first First is your fixed costs. These are the costs that you cannot live without. That would be your rent, your utilities, any technology infrastructure. So you think servers, if you're still using servers and you're not on that, on a firm-wide, you know, web-based kind of a firm, licenses for software and things like that. You know, you need Clio, you know, you need LeanLaw, you know, you need QuickBooks. Those are things that are just fixed. You really can't live without those things. Professional liability insurance is also a fixed cost. And then you've got your variable costs. So these are expenses that fluctuate. So the fixed are like every month it's the same amount of money. And the variable ones are the ones that can fluctuate with the amount of matters or cases that you take on. Salaries are one that could fluctuate as you start to— if you want to bring in more cases or matters, you might have to hire more attorneys. If that's the case, you're going to see that that can go up. Office expenses and supplies and equipment sometimes can be inflated as well. As you bring in more staff, you might need more computers, you might need more supplies. And marketing and business development costs are also considered variable costs. So what's the best way to gauge if you're not overspending? Benchmarking is the way to your— to a better financial health. So how does the firm's overhead look as opposed to industry standards? I love the Clio Trend Report. It really can give you some deep numbers there, but also there's other places you can get some of those benchmarks and you'll get percentages there. So you might find sources like the What is the typical, and enter your practice area, expenditure on just say software? And you can kind of look at that to see what are the benchmarking for your specific practice area as opposed to other law firms that are really, to assess your firm's financial efficiency. And then notice if you're above average percentage of total overhead. Is your firm's overhead consistently exceeding 50%? So if it is, you want to dig deeper and pinpoint the sources of the inflated cost. It shouldn't be above 50%. And if you have a below-average overhead, then you're running a tight ship, which is always great. There's always places for improvement. You can overall maybe even analyze what is your expenditure on software and what software are you using. You can do the software report card. I actually have that in my book, Modernize Your Law Firm, where you had a link to that, and it will take you into kind of walk you through analyzing software to see if you actually need it, or if there's something better out there. You can optimize your office space. You can downsize or renegotiate if you're finding it to be just completely excessive. If you think you're gonna leave and you wanna move to a smaller space, always go back to your current landlord. It costs money to move. So go back to your current landlord and see if maybe he'll renegotiate, he or she'll renegotiate the space and the increase in the firm. You might want to embrace a flexible work arrangement. So that might give you a little bit of wiggle room and some maybe lesser cost, because if there— if you adopt that hybrid method, you won't need as big a space for your office. And then really, when you look at staffing, you want to invest in your team. So that high turnover, I can't emphasize that enough. I've seen it happen where firms have lost 4 or 5 people all at once. It's a big pain point for your firm, and you really want to start to look at how can you keep your staff in place. If you've got good staff, they're valuable to you, and you really want to offer them competitive salaries, good benefits, and, and some professional development as well. And if you are going to be hiring and expanding your firm and your cases and your matters, try to streamline that hiring process. I think that's important to develop some efficient hiring practices. To minimize the time it takes to rehire anybody or hire anybody, and the resources that are spent. Some of these headhunting firms are very, very expensive. So you really want to look at how you're gaining and expanding your firm, and then definitely use good technology to wield technology. But don't go overboard and get crazy. And I kind of call it that shiny object syndrome. Try to rein that in. Try not to overdo it. See if you have any overlapping software that you're using or redundancy in your software. Try to go paperless. That's very important. It will definitely start to shift from paper. It's amazing to me how many law firms still print a lot of stuff. Try to shift to paperless office where you can reduce the printing, reduce the storage space, mailing costs. Try to get that emails and send them out invoicing that way. It's amazing to me how many people still mail out their bills. And then implement a firm-wide spending policy and establish, establish some clear guidelines. You want to have a comprehensive spending policy. We use Nivon for our— if we take our staff on trips, we use Nivon. We give them a specific amount that they can spend. That way it's all handled right through this software. It's pretty cool. Doesn't cost the firm anything, but it does kind of lock down that they're not booking a first-class flight to go wherever they need to go for your For your conferences and things like that, and then keep track of metrics. So monitor and analyze regularly. It's it's really important to regularly track and analyze your overhead to identify any trends, any potential problems that you might see. Maybe your attorneys and staff are spending a lot of money on meals. Take a look at that. That's a place that I do see a lot of a lot of crazy spending. And then if you need help, always look to get some professional guidance. Don't be afraid to consult with a financial advisor or an accounting firm that's. Specializes in law firm management. We can really help you dial in on your firm's financial health and be proactive. Be proactive in addressing those financial— addressing the overhead costs, and then try to unlock any financial savings to help boost your profitability. At the end of the day, that's what the end goal should be, and managing that effectively is not always about cutting costs but also about making strategic decisions along the way. And empower your firm to So I hope this was helpful, and, uh, we'll see you all next month. Bye now.
