Law firm strategies to improve profitability

Marc Gericó: “These complex times have helped law firms to establish solid foundations to see themselves as true legal services companies, in search of the desired profitability”

These are turbulent times, in general, but large law firms do not seem to be suffering -too much- from the economic recession that is being experienced in all sectors. How do they manage to survive? What kind of strategy do they carry out to improve their profitability? Our Managing Partner, Marc Gericó, analyzes in El Confidencial what are the strategies of law firms, and the objectives, decisions and indicators to compete better in these times of uncertainty.

The growing competitiveness of the market entails a progressive optimization of processes and a constant search for increased efficiency, which allows law firms to stay in the rankings. On this occasion, Gericó mentions the 10 law firms with the highest turnover in Spain, according to El Confidencial, and only “3 of the 10 largest law firms in Spain showed losses, even though it was one of the most unlikely and complex years of the last decade”.

Profitability based on law firm strategies

How do some firms manage to occupy, year after year, the top positions in the rankings? “Some of the major American firms have started to use market intelligence technology tools that calculate the ROI (return on investment) of hiring lateral lawyers and the ‘state of health’ in the relationship between the firm’s lawyer and the corporate lawyer,” says Gericó.

But not only that, they have also begun to “provide predictive analysis on possible outcomes of potential mergers and acquisitions while benchmarking competing firms. In addition, profiles such as the pricing officer have been consolidated, and the system for allocating hours has been optimized,” he confirms.

Marketing and Business Development are also at the forefront, and the more mature markets are trying to optimize their strategies by focusing on this point “to attract better business, while working to improve their profitability, as the market forces them to be increasingly competitive in their service proposals”.

Today, the legal world has changed. It is no longer about having a law firm with few in-house professionals, many outsourced professionals and a lot of technology, but rather a shift towards law firms with many in-house professionals who deal with the day-to-day, few outsourced professionals and a lot of technology.

Despite this, outsourcing is still occurring “so that the more complex matters and those requiring enormous specialization do not monopolize their in-house,” adds Gericó. “Another reason is the delegation of repetitive, low value-added tasks, for which alternative firms (ALSPs) are proving to be efficient, agile, technological and with low fees”.

Conclusion of law firm strategies

In Spain, competition is very high, and this directly affects the profitability of law firms: “the pressure for fees, the price war, the departure of partners from large firms -with their client portfolios- to found their own boutiques, the growth of the legal branches of the Big Four, the hiring and expansion of legal teams in corporate law firms”, among others.

As our Managing Partner believes, law firms have recently faced a number of difficulties that have forced them to raise prices, “and many firms have increased their profitability by cutting overhead costs during the pandemic”. They have also “increased their efficiency by eliminating part of the costs of providing legal services, segmenting tasks into homogeneous groups and assigning them to different profiles according to their complexity”.

If the pandemic has been of any use to law firms, it has been to “lay a solid foundation for them to see themselves as true legal services companies, in search of the desired profitability, in order to compete better in times of uncertainty,” concludes Gericó.

If you want to read the full article in El Confidencial, click here.