For a moment, set aside your ideas about what’s going to happen with the economy and pricing.
Allow yourself to believe that I’m right about one thing. You can resume your existence in your own reality very soon.
Here’s the thing:
Five years from now, you’ll be charging one-half of what you’re charging now for the exact same work.
It might not be obvious that you’re charging half due to inflation and other factors, but let’s assume it’s true.
So five years from now, you’ll be charging a client $5,000 for something that you’re charging $10,000 for today.
Don’t argue with me—just suspend disbelief and go with it. Accept that in real economic terms, you’ll get half of what you’re getting now.
Will that be a problem for you? Will you have to change your lifestyle?
It depends.
You can stay right where you are now economically if you can figure out how to deliver the service at half of your current cost. If you can pull that off, you’re fine.*
That means you’ve got to find and take advantage of efficiencies and cost savings amounting to 10% per year, each year, for the next five years.
How?
I’m not 100% clear on that, but I have some thoughts.
Here’s how to maintain your lifestyle after cutting your fees in half:
1. Drive down your labor costs by holding the line on increases and let inflation do the rest. Some experts predict high inflation over the next few years. If that happens, and if you maintain current salary levels, you’ll be driving down your labor costs. You will need to do more than simply hold the line on payroll. You’re going to need to bring new people in with lower compensation.
2. Improve efficiency dramatically. Five years from now, you’ll need to produce the same documents in one-half the time. Do it with document assembly technology. It’s been fun to experiment with the technology for a decade. Now you’re gong to need it if you want to keep shopping at Whole Foods and enjoying the rest of your lifestyle.
3. Move to a cloud-based case management and document management system. It’s all about efficiency. You’ll cut staff, and you’ll save time keeping your cases moving forward. The efficiency is critical, but you’ll also cut your costs.
4. Get better—much better—at client selection. Profile the profitable clients and keep them coming. Turn away the losers. One wrong choice can kill your profitability for a month.
5. Systems, systems, systems. Save time everywhere you can. For example, do you order lunch in for mediations and settlement conferences? Is the ordering process a hassle? Pick a restaurant, negotiate terms and systems, put a form on your website with limited options, and automate the process. What used to be an ordeal over who wants mayo and who wants mustard becomes a simple and efficient process. Each individual system is trivial. Collectively, the systems drive down your costs. Don’t let your people reinvent the wheel for every task. Your firm is doing the exact same things month after month, year after year.
6. Make all costs variable. Give yourself the flexibility that helps you avoid paying high overhead in low revenue months.
7. Make short-term commitments on everything and renegotiate at every opportunity. Some are pushing you toward long-term leases on space due to the downturn in commercial real estate. I question whether you even need the space. Watch out for long technology deals: don’t sign a three-year deal on your cloud case management system—go month-to-month. Don’t lock into technology that requires hardware, keep shopping around your supplies, etc. Random comment: I just got off the phone with my cell phone provider after being given unlimited everything for less money than I was spending on my previous plan. It was a valuable ten-minute call.
8. Outsource as much as possible: arbitrage the labor market. Indian attorneys can be had for $10,000 per year. Use virtual assistants. Outsource your tech support and marketing production. Buy the labor in a low price market; sell it in a high price market.
9. Eliminate all automatic expenditures. Find those things that auto-renew and evaluate them carefully. For instance, don’t renew the Paralegal Guide Book at $120 if you don’t need it. Stop the listing on DivorceNet if it isn’t working. Drop out of the voluntary bar association you aren’t using. Hunt down those small items that sneak by you and kill them.
10. What else can you do? I’ll be looking for ideas, and you should as well. Dig through your P&L line by line and examine every expenditure carefully. Think less about cutting the expense and more about getting more value from each dollar you spend. Cost cutting is important, but efficiency is even more important. Don’t be penny wise and pound foolish.
What if I’m right?
Okay, back to reality. Will your prices five years from now be half of what they are today? You probably don’t think so. I happen to disagree.
[ While I have you here, I wanted to remind you that you can get the latest articles delivered to your inbox a week before they go up on the web. Just one email per week. Sign up here. ]
Let’s say you’re right: what’s the downside of cutting your costs in half through savings and efficiency?
Let’s say I’m right: what’s the downside of cutting your costs in half?
My suggestion—assume I’m right and take aggressive action NOW. Your goal should be 10% per year in increased efficiency. If prices hold steady or increase, and you follow my plan, then a year from now your top line will be flat or up and your bottom line will be up significantly. Five years from now? Wow, you’ll be doing great.
But, if I’m right, and I think I am, you’ll still be humming along while many of your competitors are crying poverty.
Either way, you win. This is the time to take action.
* When I say “you’re fine,” I’m making a few assumptions about your marketing and cost structure that aren’t pertinent to my point today.
