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Basics Revisited: Evaluating The Profitability Of New Work

By Jeffrey H. Steinberg

Your 50-attorney firm has been operating slightly under capacity; there is not enough work to keep all attorneys billing their standard hours. A prospect would like to engage the firm to handle all its litigation, which would mean a substantial number of guaranteed billable hours. Good news, right? This company, however, wants to negotiate a discounted rate and also wants specific partners to handle the work. Your initial instinct tells you to take on the work to keep the firm at maximum capacity. But will it be profitable in the long run? Should you take on the work? How can you decide?

The way a law firm makes decisions about taking on new revenue starts with an understanding of profitability ' and the underlying factors that affect profitability. Before accepting any new work, any firm should consider five key factors: production, utilization, realization, leverage, and speed. The first four elements are crucial any time a firm considers new revenue.

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