Latest / Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love / Episode 335 | The Ryan Kimler Takeover: The Numbers Behind Your Law Firm’s Profit

Transcript

Episode 335 | The Ryan Kimler Takeover: The Numbers Behind Your Law Firm’s Profit · Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love

• 0:01
  Intro: Welcome to the Wealthy Woman Lawyer Podcast. What if you could hang out with successful women lawyers, ask them about growing their firms, managing resources like time, team, and systems, mastering money issues, and more? Then take an insight or two to help you build a wealth generating law firm. Each week, your host, Devina Frederick, takes an in-depth look at how to think like a CEO, attract clients who you love to serve and will pay you on time, and create a profitable, sustainable firm you love. Devina is founder and CEO of Wealthy Woman Lawyer, and her goal is to give you the information you need to scale your law firm business from 6 to 7 figures in gross annual revenue so you can fully fund and still have time to enjoy the lifestyle of your dreams.
• 0:47
  Now here's Devina.
• 0:49
  Ryan: Hi. I'm Ryan Kimler, founder of the Net Profit CFO and CFO coach for Wealthy Woman Lawyer. Davina has asked me to take over her podcast today and share what a law firm owner's financial dashboard could look like. Five numbers that predict profit. Stick around to the end and I'll share with you an exclusive offer for Wealthy Woman Lawyer Podcast listeners only.
• 1:12
  So, let's dive in. First, let's get down to profits and let's get into the five numbers that are great to track and put on a dashboard. The first two really drive revenue or sales. The first one that I'm going to talk about is the total number of invoice or invoice volume that you're issuing at your firm. Depending on your firm, if you're, you know, an estate planning firm or something like that where you're collecting fees upfront and that's going into the trust account and, you know, then you're splitting fees later half and half, I would count that as two invoices or maybe you're a family law firm and you're billing a divorce case every single month.
• 1:57
  Obviously, that invoice, you know, counts as one per month, right? So, one case could be two invoices, maybe it's half and half like on an estate planning or maybe it's multiple invoices over the course of multiple months either way it's really important to track invoice volume this is also going to tie back to and give you some insights into well how many open cases do I have right now Right? So invoice volume is a great first number to track, keep a trend on, and also just look at what did you do last year. How many invoices in total did your firm issue last year? So that's metric number one.
• 2:42
  The second metric is look at the average price on all of those invoices. So again, I'll give an example if you're an estate planning firm. Maybe you split the invoice in two. Maybe your average trust is let's just say $6.00 just for easy round numbers. Your first invoice price would be 3,000.
• 3:09
  Second half would be the other 3,000. But looking at when we issue a bill at our law firm, what is the average price of that bill that we're issuing? Again, if we multiply together the number of issued invoices times what our average is, that's going to bring us to sales. So, invoice volume times price gets us to sales. So, this brings me to another point that's not necessarily related to the dashboard but that I always like to point out to law firm owners that I'm working with.
• 3:49
  You know, if you want to increase revenue or sales, there's really one of two ways to do it. Either number one, we increase volume and we have more cases, more clients, more invoices to be issued or number two, we raise prices, right? We increase the price of each invoice. That means we don't have to increase the invoice volume as far, right? Because we've capture more dollars on each invoice or we do a combination of those two.
• 4:22
  Okay? So those first two numbers, I think super important not just to track, well, what did I do last month but also maybe what did I do last quarter? What did I do last year? What is the trend of those numbers? Right?
• 4:42
  So, what's the trend of my pricing? What's the trend of my volume? Especially if you're going to raise prices, right? Maybe, you know, going into second quarter or going into third quarter, you want to raise prices on your services, tracking what happens to the volume, really really important. I mean, I think before then, definitely track, you know, your conversion rate and how many cases you're closing out of consultations and and during your intake process but tracking invoices at the end, you know, that's kind of an ending metric but that's a really great thing to track as well.
• 5:24
  So, just to recap, total number of invoices issued times price is going to give us total amount of sales or revenue. Obviously, you've got to go collect that, which is a whole other conversation. But that gets us down to sales. Alright, from there, next parts in the in the five numbers here that should be on your dashboard. I'm going to get into the expense side of things and we when we get all done here, you're going to be able to get down to the net income of your law firm really, really easily with the five numbers that I've given you.
• 6:01
  Alright? So, expense number one, that's always super important to look at, I would say, is your total payroll. So total payroll, this does include you on payroll as the owner. This should also include, health care benefits. This should include, like, workers' comp insurance.
• 6:23
  If you have it four zero one ks and retirement matches anything even you can even put in the the paying for the payroll software whatever that is In my opinion, anything that contributes to or goes to paying our people at the law firm is great to capture in one kind of expense bucket, if you will. It can be multiple accounts in your accounting software. That's fine. But have it all summarized up and sum up to one number that goes on a dashboard that you can track. Right?
• 7:05
  For the entire month, that's going to be multiple pay periods, but that's going to give you a good handle on what we're paying our people. If you have outside counsel or outside contractors that you're including in that mix, that number could fluctuate greatly month to month, that's fine. Still keep a great track on it, keeping track of payroll, super, super important, should definitely be on your dashboard. And I also love to see, you know, every single month, a quick math, you know, that that you can do as an owner is take your total payroll divided by total sales, right? So, really quickly, just to make round easy numbers, let's just say total sales for the month was $100,000 Total payroll for the month was $30,000 right?
• 8:04
  That would be a 30% payroll cost. So in total, 30% payroll cost. Again, just keeping a track on not just dollars but also percentages. I think is a great way to put things in perspective. If you're creeping up towards 50% payroll cost which I've definitely seen in firms.
• 8:26
  I've seen worse than 50% payroll. You know, that means you're getting less than a two X return on your people, right? You know, especially from, you know, billing staff, that's not a good return, right? Of course, in total, your payroll number is going be a blended average, right? Of not just your legal billers but also your administrative staff, you know, if you have front desk staff or things like that.
• 8:56
  But again, I really love to get down to a percentage and figure out, you know, that's gonna lead you down the road of starting to figure out what's our real return on our payroll investment. So that's really expense number one that I think goes on your dashboard for the five numbers of profit. Great expense number two would be your marketing and advertising cost. So again, summarize everything that we're investing in marketing to market the law firm. Put that all into one bucket.
• 9:37
  Sum it all up, right? There's a multitude of channels that that could be spent in, right? I'm not going to go through and list all of them here, but just capture what are we spending each month in marketing. Some practice areas are going to be more than others. Know, like for example, the PI space always seems to be super competitive for getting cases and marketing spend there.
• 10:04
  But either way, no matter what practice area you're in, add up what your marketing investment is and again, a great metric is to divide that by sales, right? How much of our sales dollars are we spending in marketing to market our practice for the cases of tomorrow, really, right? And for future revenue. So, again, I would say expense number two, best thing to put down there is your marketing expenses in total. And then that brings me to the third bucket of expenses or the third number that you should have on your dashboard and that is your total overhead cost.
• 10:47
  Now total overhead is going to include basically everything else that is not payroll or marketing. So, basically, everything that it takes to run a traditional brick and mortar location, You know, it's going to include your office rent. It's going to include office supplies. It's going to include your general liability insurances. It's going to include your malpractice insurances.
• 11:15
  All of those overhead type things software computers utilities if you have it right anything that it takes to keep the lights on of the business rather or not, you sign up a single case, right? So, you know, as an example, if you're locked into a lease for your office space, you know, maybe that lease is a year long. Rather or not you sign up a single case at your law firm. You're oh you owe rent to your landlord, right? So, again, the overhead bucket is not tied to productivity compared to productivity and sales compared to like payroll for example.
• 12:06
  Obviously, if you're doing a million dollars in legal work right now in legal sales, a year and let's just say your payroll investment is $300.00 a year. Obviously, you can't, you know, move, you know, increase your law firm sales to $5,000,000 and keep $300.00 in payroll, right? Obviously, that kind of capacity change would require more staff and more payroll investment. So, but your rent wouldn't necessarily change unless you needed to take on more space, right? So everything that's in overhead is really brick and mortar, kind of related, or that's how I think of it.
• 12:50
  It's what it takes to keep the lights on, rather you signed one case or 100 cases. Overhead So is not a bucket that I, you know, care to look at as a percentage wise as much as payroll and marketing. But now that we've put the five numbers together, just to recap the whole thing, number of invoices at the top, average price on those invoices is second, multiply those together, you get to sales or revenue for the month. Followed by what are our payroll investments or cost that we're investing in our people. What's the marketing spend that we're investing to bring new cases to the firm?
• 13:39
  And then lastly, what is the overhead that we have as a firm? Again, rather we sign one case, 100 cases, 500 cases, you know, we have to pay rent. So, those five numbers are a great summary that should go on a dashboard for you as the owner and if you get down to your sales, you know, again, you could set up an Excel spreadsheet to multiply those two numbers together automatically and you know you wouldn't have to sit there and manually do the math you'll get down to revenue or sales and then subtract out your three expense buckets payroll, marketing, overhead that is going to get you down to the net profits or net income of the law firm. Now, as a as a bonus here, I do love to take net income or net profits and divide it by sales. So, let's just say we get down to the end of the month and we have $10.00 in net profits on $100.00 in sales, that'd be 10%, right?
• 14:54
  $20.00 in profits on $100.00 in sales would be 20%. So, figuring out what that percentage number is and tracking it over time is super important. The number of dollars that you're keeping as net profits or net income really tells you how efficient your business is. You know, some law firms are going to be more efficient than others, right? And you're also going to go through different phases of, you know, maybe you're trying to grow the firm, you know, obviously, growth takes investment and you're probably going to be a little bit less efficient during those time periods but you really need to set a baseline.
• 15:39
  What is my efficiency when I'm not trying to grow and if you're specifically focused on how can I make my business more efficient, have more profits, right? You should be looking to improve that efficiency month over month. So, those are the five numbers that I highly, highly recommend you put on a financial dashboard for yourself as an owner that you can monitor. You can see a lot of great trends out of those summary numbers. You don't have to look in-depth at any financial reports.
• 16:13
  You could probably get with your bookkeeper or get with your accountant, have them put together a spreadsheet for you and just have them start plugging in those five numbers over the course of, you know, each month when they get the books done. And that's a great, great summary financial tool that you can use as an owner to monitor your law firms, see how things are going, look at trends, especially if you have several months of financial numbers that you're starting to look at this with. You can really see the trends over time and that's going to give you a great start on what changes you might need to make. Great start on managing the firm from a financial perspective with a simple dashboard with five numbers. Alright?
• 17:03
  So, that's what I recommend. Thank you all so much for tuning in. Again, this is Ryan Kimler, founder of the Net Profit CFO and CFO coach for The Wealthy Woman Lawyer.
• 17:15
  Intro: If you're ready to create more of what you truly desire in your business and your life, then you'll want to visit us at womanlawyer.com to learn more about how we help our clients create wealth generating law firms with ease.