When I was growing my business, there were many competitors concerned about how big they were in terms of volume transactions and turnover rather than focusing on their profitability. This is known as vanity. The way I look at this issue is very simple. Which channels generate more net money in my bank account? After all, your business should be managed on cashflow anyway.
In my role of helping others grow their businesses, I research potential client sectors, and it is amazing what a wide array of KPIs I see. All sectors would have similar figures, but solicitors generally range from 5% pre tax profit/turnover to 32%. This is a massive difference and it is important for any business to truly understand these key drivers and establish what can be done to improve them. A few may be going through big growth investment, so there may be a short-term blip – normally one year – before you see the real picture. Most have stable turnover over a few years but their profit is wide ranging in percentage terms.
Law is a sector that can now attract investment, and with that investment will come change. With the introduction of the Legal Services Act, most solicitors’ initial concern would be who would fulfill the role of Compliance Officer for Legal Services and Compliance Officer for Finance and Administration. This brings back memories of when my business went through regulation and the challenging changes brought on, forcing me to adapt and move forward.
So much can be done in this sector. There needs more focus on service excellence which will complement legal excellence hence lead to greater long-term profit. Solicitors are in the service sector but many feel that it is only recently that some have adapted. There is still much change required and with the likes of the supermarkets product wrapping some commercialised legal services, everyone needs to be evolving.
Look at how the number of small high street shops have been gobbled up by the supermarkets. Make sure you are doing everything to improve and grow your practice and focus on the sanity, which is the profit. If you’re one of the firms producing 8% pre tax profit/ turnover, you need to catch up quickly with those at 32% otherwise life will be so much tougher. Can you afford not to engage in change?
It is always important that you maintain your margin at all times. The temptation can be to forego margin, but that really can lead to disaster as you have nowhere to go from a negotiating point of view. A better way would be to brainstorm ways of adding value so people are willing to pay the margin you want. In this instance, it is often a case of perceived value, so your positioning is critical.
In summary, pay attention to only those things that drive profit. Do not get involved just to build turnover, as that is a recipe for disaster. Also, look at your competitors and learn from those that are doing well.
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