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From Good to Great: How Law Firms Achieve Best-in-Class Profitability
Some things you never forget. Like the Saturday in 1993 when the managing partner called and told me the firm was shutting down — I no longer had a job. I looked at our six-month-old son and wondered how we would feed him. A few years before, I had survived a similar implosion at another firm. Both closures were caused by bad management, plain and simple.
After the second blow-up, I was fortunate to land at an exceptionally well-run firm. That’s where I learned what makes a law firm a best-in-class financial performer — and how to make my own practice more successful and enjoyable. This article boils down those learnings into simple principles any small to midsize law firm can use to improve performance.
Let’s start with what best-in-class performance means, and then walk through how to get there — by focusing on efficient processes, productive people, and a strong product-market fit.
What Is Best-in-Class Financial Performance?
Financial performance in a law firm comes down to something simple:
Revenue – Overhead = Profit
Profit breaks down into five elements:
- Capacity
- Utilization
- Realization
- Collection
- Overhead as a percentage of revenue
The formula may seem basic, but the insights are powerful.
The Utilization Gap
According to Clio, average utilization — the percentage of a timekeeper’s capacity spent on billable matters — is only 45%. That means in a 10-hour workday, only 4.5 hours are billable. Whether that’s because of admin overload, lack of billable work, or poor delegation, the result is the same: expensive capacity is wasted.
Best-in-class firms drive utilization above 70%. That’s over 600 additional billable hours per lawyer per year, translating to nearly $200,000 in revenue at $300/hour.
The Overhead Trap
Average firms spend around 50% of revenue on overhead. Best-in-class firms bring that down to 30%. The biggest driver? Too many non-billable staff—a common symptom of inefficient, manual processes.
A good benchmark: fewer than one non-billable employee for every revenue producer (attorney or paralegal).
The Bottom Line
Lawyers in best-in-class firms can earn triple the profit of peers in average firms. That might mean $200,000 more in annual income — or $8 million over a 40-year career. Inefficiency doesn’t just cost money. It creates stress, unhealthy billing pressure, and burnout. From my own experience, greater profitability made me a better lawyer — and a happier one.
The Simple Path to Best-in-Class Profitability
Lawyers want to focus on practicing law — not managing operations. Legal administrators might see what needs to happen but feel too buried in daily work or defer to attorneys on strategic issues. That’s why profitability improvements must be simple, self-sustaining, and built into how the firm already works.
The roadmap has just three pillars: efficient processes, productive people, and a strong product-market fit.
Efficient Processes: Build the Foundation
Start with workflow planning, align your tech stack, and manage change with intent.
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