Page 136 - 2019 - Leaders in Legal Business (q)
P. 136
otherwise use the firm’s code set. In U.S. litigation, leading firms are using eight to nine phases.
For transactions, most firms use the new ABA Mergers & Acquisition Code Set for all transactions.
Since most client code sets are more detailed, it is possible in most cases to map the client code
back to the firm phases.
Modeling Margin
As firms continue to discover, based on annual declines in overall revenue per lawyer
figures, matters can quickly become unprofitable when simple discounting is used — see the chart
below.
Raising rates and discounting is not working over the long term. Firms have more recently
instituted approval processes to make sure that work being undertaken is profitable. Such processes
typically require modeling at the client or even matter level. Often, a highly discounted client rate
will also require each individual matter to be modeled to ensure that it can be delivered profitably.
While firms may not necessarily share matter costing models with their partners, most
finance teams will typically create them. The models determine the cost per hour to perform work
and provide a simple mechanism for computing profit margin. The numerous different approaches
to calculating cost models require their own separate white paper. Without such cost models, the
only other mechanisms for measuring profitability are via combinations of realization/recovery
and leverage/gearing.
For new work, the modeling of a potential matter or client relationship can be based on
either:
• Hours and resources (person or class/level)
• An amount with a ratio of staffing
121
For transactions, most firms use the new ABA Mergers & Acquisition Code Set for all transactions.
Since most client code sets are more detailed, it is possible in most cases to map the client code
back to the firm phases.
Modeling Margin
As firms continue to discover, based on annual declines in overall revenue per lawyer
figures, matters can quickly become unprofitable when simple discounting is used — see the chart
below.
Raising rates and discounting is not working over the long term. Firms have more recently
instituted approval processes to make sure that work being undertaken is profitable. Such processes
typically require modeling at the client or even matter level. Often, a highly discounted client rate
will also require each individual matter to be modeled to ensure that it can be delivered profitably.
While firms may not necessarily share matter costing models with their partners, most
finance teams will typically create them. The models determine the cost per hour to perform work
and provide a simple mechanism for computing profit margin. The numerous different approaches
to calculating cost models require their own separate white paper. Without such cost models, the
only other mechanisms for measuring profitability are via combinations of realization/recovery
and leverage/gearing.
For new work, the modeling of a potential matter or client relationship can be based on
either:
• Hours and resources (person or class/level)
• An amount with a ratio of staffing
121
