Do You Know the 5 Numbers That Predict Whether Your Firm Grows or Shrinks Next Year?

Welcome to the Dominate Law Podcast. I'm your host, Donna Desha, and today's conversation is about the numbers. Law firm owners need to understand if they want to know whether their firm is truly growing or whether problems are quietly building underneath the surface. Before we get into the conversation, this episode is proudly sponsored by Equa Marketing, helping law firms strengthen how they are found, understood, and trusted online. And if you're a law firm owner, managing partner or attorney in leadership, Equa is offering you a complimentary 60 minute marketing strategy meeting where their team will take a closer look at your online visibility, your positioning, and where potential clients may be slipping through your marketing and intake process. You can reserve your complimentary session at www.dominantlaw.com/msm. And today's conversation brings together three people who look at law firm growth from very different but incredibly connected angles. We have Shireen Hilal, who works with law firm leaders on profitability strategy and building firms that can grow without everything depending on the owner.

Joining her is Jonathon Fishman, founder and CEO of Lean Law, who brings the financial and technology perspective, helping firms turn their workflows and financial data into information they can actually use to make better decisions. And then we have Brooke Lively, founder and CEO of Scaling Law, who works closely with law firm owners to understand what their numbers are really telling them, and how to build stronger, more profitable firms without sacrificing their lives in the process. So we're bringing together strategy, financial intelligence, operations, and real world law firm growth. Let's get into the conversation. It's a pleasure. Alright, I'm gonna go ahead and stop sharing my screen and we will get into the discussion. My first question is to you, Shereen, which financial pattern most often signals that revenue growth is masking a weaker profitability, operational strain, or even owner dependency?

Yeah. Um, thanks, Don. So, revenue always gets the most attention because it's easy to measure, easy to celebrate, everybody asks for it, right? It's how leaderboards rank firms. It's the first number of banks gonna ask for if you wanna a line of credit, but it just isn't the full story. And so I think about revenue in two ways. How healthy is it today and how dependable it will, will it be tomorrow? So current, um, to me, the biggest red flag is when revenue is growing faster than profitability. And so I see this all the time. A firm will bring in new clients, it will complete an acquisition, it will add lawyers open more offices, and on paper there's growth, but it doesn't mean it's necessarily profitable growth and that the juice is worth squeeze. And so it's how much did you have to spend to produce that?

And spend is not just money, it's leadership time, it's aggravation. It's the strain that growth puts on your systems and people. And so, couple very quick examples. That new team you poached, they're gonna need assistance and paralegals, and then perhaps that additional volume, you're gonna need another person in billing and operations. So the firm has added revenue, but it does add cost and complexity. And the question is how much, um, now let's think about future revenue. And this is where owner dependency can hide. And so a practice may look highly profitable because a partner's bringing in clients supervising the matters, stepping in when things go wrong. And that looks excellent in the quarterly numbers. But does it show how dependent that revenue is on one person's time, relationships, and that constant intervention, you have to ask what happens to that revenue if the partner steps back?

Can somebody else manage this client? Have we developed other people? Is the partner personally holding this together? And so I know this webinar is about five numbers, but I think what it comes back to eventually is the numbers give you a place to start, but they'll never give you the full picture and they won't tell you exactly where to fix. Um, revenue could be outpacing profit because the work is underpriced or because the firm added too much overhead or because people are inefficient or because a partner's doing work that should be handed off and there's no delegation discipline. And so the same number can point to a number of issues. And the map is never, the terrain numbers will tell you what looks off, and then you gotta get closer to the work. So to bring it home, I'd look beyond whether revenue went up and ask, is it profitable today? And can the firm keep producing it tomorrow?

Well, and Shereen, I just wanna break in. Go ahead and say, and is that the way you want your firm to go? Because

Right to the aggravation point, <laugh>,

Yeah. I've had, I've had, um, owners come to me and say, I've got, you know, 30 people working for me. Now my revenue is, you know, this big, I'm working six and a half days a week. I never see my children. Right. And I'm making the same amount of money I made when it was just me and a paralegal. And we worked four days a week. Yeah,

Exactly.

Uh, it is interesting. I, what what made me think was like, that problem is not just a law firm problem. I mean, we have in software and you know, and we're looking at the advent of all these startup AI companies that are mistaking profitability or at least a path to profitability for growth. And those are two different things in understanding. And it was kind of a hard understanding for my company, like really thinking the differentiating growth from long-term profitability. And I think, you know, we, I I was looking at your background and I, you're dealing maybe up market from us. I mean, we, in our, our user base, it's very what we call small mid market, even down to market, right? Right. And what you find is the, the <laugh>, they, they, they run on, on gut and instinct and cashflow, right? Yeah. And it's this complete misnomer, and they're not really looking at any real data. Um, or when they do, it's this, you know, 20 page report and, and they just sort of glance at it and say it's okay. So I, and

They have no idea how to read that report.

Yeah. Your your, your point is really astute the difference between cashflow or revenue versus profitability. 'cause that's, it's, it's oftentimes, um, not seen

John. Well, and this is

Where,

Uh, sorry. Sorry,

Sherry. I was gonna say that, um, this is where I would really press on your accounting team or like your outsource CFO if you're getting a data dump every week or every month, and it's an 18 tab spreadsheet, I mean, so what now what you should really, you know, say I need to hire somebody who can tell me what's really going on and what to do about

It. And, and Sharine that is one thing. So I own a fractional CFO company for law firms, and people will send us, oh, this, you know, look, this company produced this, you know, thing with 18 tabs, and isn't it great? And I'm like, Uhhuh, what does it tell you? They're like, but you give us something that has four graphs and three numbers. I'm like, yeah, but those four graphs and three numbers give you so much information, and in a way you can understand it.

I wanna pause here and go to the next question, because I think this is very interesting. Uh, Jonathan, where do firms most often lose visibility between that billing collections and reporting? I think you were just getting started on this. So, yeah, so

I, I, the comment I was just about to make, it's all started, and I, I really have a strong premise on this, or strong belief, um, smart workflow creates good data mm-hmm <affirmative>. And with good data, you can glean insights. And with glean insights from what you just said, you can actually act and do intervention. And, and so I think it's important to, that you can't ignore the workflow. You can't ignore some of the things. So to answer your question, I'd like to break it down into three buckets, right? And I'll talk a lot about these same numbers, because we preach it as our core k, our core KPIs, but the first is work to invoice. So if you think about what we're trying to get at, the gaps are really where leakage happens. So when you're, Brooke, we're talking about that person who, uh, blew up their business and is making the same amount of money, but working five x, right?

Most of it's leakage, right? And they're, they're, and what I mean by leakage is you, it's first in realization and realization is ensuring that the work we do actually gets into the system and gets billed, right? That's the first piece. And, you know, I, I'm gonna use an example of a firm and just, just for easy math, I put numbers down, 10 attorneys billing, 500 bucks an hour, 2,220 hours a year is a 6.6 million firm. So let's just, I'm gonna refer back to that 6.6 million. So if you take just that first bucket of work to invoice, and on average firms, uh, realization, and it's one of our core KPIs, when we come into a, when we sell, we ask the question, Hey, what's your realization rate? Do you not know it? Oh, like, so it's 88%, so on, on, on a $6.6 million firm, that's $330,000 that is just seeped and gone.

So no more work. That's three end things. So the first is realization, and there's all sorts of tactics to address realization. And one of the most important one that gets missed is the engagement of a client and setting up the terms of how they wanna work. Like that is flubbed so often at engagement. So then you're working uphill all the way through the entire engagement of the process. The second is invoice to cash, right? Your collection rate, um, and this is, this, this drives me batty with law firms, but again, typical collection rate, and this is cleo's numbers, by the way. These are their annual report that they put out, um, is 90, uh, 90, 91%. So on that collection rate, there's another $600,000 sitting on the table that just gets lost. So we have a million dollars sitting on the table in those first two buckets of essentially leakage. So if you're saying like, where does the visibility happen? Is that they don't really have good visibility and realization, and some of the underlying behaviors that impact it or there have hardened old terrible work habits. I call 'em worse practices versus best practices. Um, or I'm stealing that. They have, I

Was gonna say that yellow legal pad where my brother writes everything down and puts it in on Fridays.

Yeah. So, and then they, you, you, uh, anyways, I won't get into some of the stories I've heard. So, and then, you know, you take that, so the last piece of this is the, essentially the cash to the books, the rec reconciliation lack. So most of them aren't really looking at the data until 30 to 45 days after it happened. Mm-hmm <affirmative>. So, so we've got this third lack. And by that point, many times, because lawyers often are very intimidated to actually do collections because they can get sued and all the different things that happen with their bar associations, it's very easy for someone to say, Hey, I'm feeling harassed by a lawyer. And so they're very sheepish to actually chase collections, so they write off a lot of work. So those are the three things. It, it's really architectural. Um, and it's, it's not so much effort that lawyer shouldn't be billing more hours.

They should be looking downstream for the leakage. So that's the three areas that, that we focus on and let, and where we coach often. Um, and, and last point, um, our best firm, our, it's a B2C and they're in the divorce, but our best firm, they switched and their engagement and said a hundred percent retainer. So they use an evergreen retainer. We facilitate that in a fully automated way at lean law. And so every one of their clients is retainer based. And what that means is that they're never chasing ar, they're chasing retainer replenishment, which they can stop work. That's number one. The second thing is they went to an entirely electronic, um, payment processing. So everything is digital. There's, they do not accept anything other than credit cards or ach hs. In year one. It put a million dollars of cash in their pocket just by that one behavior. And it was all about leakage, right? Leakage in upfront and leakage in the back.

I love that. Uh, Jonathan, thank you very much for that. And, uh, we just got an update. Uh, Anna Lee will not be joining us because of a unexpected, um, situation that has happened to her. Um,

We almost start,

We definitely will. Um, but we will keep going strong here. Brooke, how should a firm decide between higher matter volume and stronger profit margins?

That is interesting. There are a lot of factors that go into it. Um, one is what kind of law do you practice? If you are a litigator, you're probably going to worry more about margins. If you are a, an immigration attorney or personal injury, that's really where you have the choice. Are you going to be a factory? It really comes down to if you, if a lot of the work can be done by non-attorneys, how much of it can be done by non-attorneys, by people offshore these days by ai? If you can do that, those are the practice areas that you can have a smaller margin historically and, and be much more of a machine. Be, you know, really a factory that can deal in volume. Um, the stronger profit margin areas. You know, we say that every employee should bill three to five x the total cost of that employee. If you're not doing that, if you're leaking one X of what you're billing, Jonathan, because someone's writing it down, or you are forgetting to put it in the system, or no one's collecting it, that's a problem. Um, but, you know, you should be billing and collecting three to five X the cost of every employee.

Hmm.

That's a normal firm. That is a firm with strong profit margins. These factory firms, these firms that are really well-oiled machines with the advent of ai, their margins are going up because they can automate more. And, you know, I'm watching my personal injury firms use AI and do stuff. My trust in estate firms, my immigration firms, and it's fascinating to look at how they are reducing the people on payroll for ai, because people are your most expensive line item on your p and l. That's what kills you right there. It's where people overspend,

Brooke, which two or three numbers should be reviewed together before really chasing more volume?

I think the first thing that you need to look at is, is inside your heart. What do you wanna be? Do you want to be a PI firm that has 2000 cases in your inventory and you're just churning and burning all day? Or do you wanna make the same amount of money and carry 50 cases? What kind of law do you wanna practice? Do you want everything to be really rote and and filling out the same demand packages every week? Or do you want to practice really specialized litigation? That's the first thing you have to think about, because I have people that are that very spec specialized litigation firm, and they would be miserable in a high volume firm. And I've got high volume guys, they're like, Ugh, I don't ever wanna see the inside of a courtroom. So it's, it starts with the owner and, and really what they want.

Mm-hmm <affirmative>.

And then it comes down to understanding what, you know, it really comes down to who you wanna be. Right? It really that that's what it comes down to, making that decision and then committing to it.

Yeah. Got it. I I, I wanna add one little comment going back before that, which is, I think when we think about profitability, you know, we're gonna talk a lot about the hourly model, right? Which gets into time entry and, and, and the essentially the commodity of someone's human time. But the one thing I'll note is that there are different ways, and it's often overlooked in looking at profitability in flat rate models, um, and contingent models. And, and to your point, Brooke, the number one thing that's not measured is the essentially utilization of staff relative to a specific client or specific matter. So when an attorney looks at the, at a, uh, plaintiff case, and they're saying, okay, they're tend to look at their sort of instinct of what it will settle for, and a good one knows kind of what's gonna happen, or now they have AI tooling that will give them some directive on that.

But the second piece, they, and then they say, well, what's my cost? Right? What, what, what load have I put out on this? And then they start to think about, is there counsul? Is there other people sharing? But they ignore the, the cost of the labor. Mm-hmm. They just mm-hmm. They, they, they don't think about how many hours went into that case. And I, I, it's one thing we're working on is it's hard right now because AI time tracking is really useful here, but it's a commodity and it's very expensive. Typically, the rate of AI time tracking is a hundred dollars per user per month. And most pi firms that don't track or flat rate firms are like, we, we don't track time and we don't have a budget for that. So I'm, I'm looking forward to when AI time tracking will come down in price. And we're actually lilo's talking to someone right now about, we have partnerships with billables AI in 0.1 for hourly models, but for those flat rate and those, those, um, contingent models, um, thinking about how to bring down the AI tom tracking to get directional data, it doesn't need to be perfect, right? Because it's, we're not getting audited, but flying by into those numbers of profitability. And I, I just, that's something that we think about. Um, and our best, uh, last point, our best performing contingent firms track time.

Okay. I agree. And, and I have been fighting the time tracking and contingency firm. I, I have been having that argument for 10 years, and I have just been so beaten down by all these guys that are like, there is no way we're gonna track time. And

I don't know how much

I have

Left at that. It's hard enough to get hourly billing people to put their time in when you know, it's not making it onto the bill. I think your data is gonna be so poor. Um, I, I want it, I just, I don't know know how realistic, I think you've gotta figure out how to cobble it together.

But here's what we, what we do track that is not perfect, but it helps is time on desk for, um, for both flat rate and contingency. And when I say time on desk, I'm not saying time. It came in the door till time the file is closed, I'm looking at time in each stage,

Right? Right, right.

Then you can see where cases are getting held up, why they're getting held up, and you can see how long each stage takes. And that becomes somewhat of a proxy for, for effort.

That's very, how

Do you reliably do that, Brooke?

There is software and I feel sure that Jonathan's software can do this.

Lean law doesn't mean

<laugh>. I know it can, where when you move it from one stage to another, it starts a clock. Yeah. And you know, we know that a average car accident, once you have finished treatment, it takes 72 days. I'm totally making this up, guys, 72 days to collect all the medical records, and then it takes seven days or 10 days to get the demand package prepared. So at 65 days, the software is telling you, hello, you've only got a week to get the rest of these medical records in. You better get on it. And then, you know, you've got 10 days to get this demand package out.

Yeah. Velocity, velocity is, oh, sorry, Brooke.

Well, and we want everyone, the, the paralegals, the legal assistants, and the attorneys to be at the very least, have 80% of their cases within the parameters.

Yeah.

There we go.

So what were you gonna say about velocity?

Yeah. That velocity plays for plays true in any operating model for a law firm. I mean, you're talking about plaintiffs, but you know, aging whip is, is is essentially leakage, right? Um, mm-hmm <affirmative>. So I just, I, it's, that's not exclusive to plaintiff's firms.

Well, or I have an insurance defense firm client, and so that's the opposite practice. And the whole name of the game for them is, how fast can we move these cases? Because the carrier rates are abysmal <laugh>, so they get paid by the hour, but they're capped and it's capped low. Yeah. And so it's really about how quickly can we move these files in a way that is ethical, given the nature of the cases, and putting them on different paths and redoing the system. So yeah.

Shirin, let's take a look at a different angle, uh, to our conversation here. How can firms assess whether attorney or practice area of profitability reflects that sustainable performance?

Okay. Yeah. This is actually a great continuation of the question you asked me before on revenue. And so we've been talking about how revenue isn't always profitable, and now we're talking about sustainability. And so for that, you have to consider whether the conditions that produce the success you're having today, um, are likely contin to continue, right? And so I look at three things, demand, concentration, and repeatability. So first demand, did the practice grow steadily throughout the year? Um, was it one or two large matters that carried that result? And probably most important, what's happening in the market around this practice, um, you know, some areas are heavily tied to the deal environment, interest rates, regulatory enforcement, changes in government priority. And so a great year may reflect a real long-term shift in demand, or it could be a temporary spike. And financial reports won't tell you which one that is.

That's where you need to pick up the phone and talk to your clients, and also walk down the hall and talk to your line partners and ask, what are your clients budgeting for? And what initiatives are they pushing off? What work are they bringing in house? What are they asking for now that they didn't six months ago? And if you're on the B2C side, I think there's very similar questions, right? How are, how are our clients feeling about budget and how long is it taking them to sign those engagement letters? And what are the kinds of questions they're asking first? And so the point is to understand whether demand that you're seeing today is likely to continue, not just whether the practice performed well last year. And so then second, let's look at concentration risk. And so how much of this practice is profit comes from one client or one partner?

Um, and look, we already talked about owner dependency, so I don't think we need to go back there. But suffice it to say you cannot build reliable future growth on the back of one person or one client. And then third, can the firm repeat this result predictably? And so now this is broader than whether one partner can step away. It's about whether the practice has a reliable way to keep producing the work. Are the matters managed consistently? Is the work priced and staffed in a way that can be repeated? Is the team learning from one matter to the next, or rebuilding the process every time? There's a lot of firms where depending on who picks up the phone, you're gonna get different staffing, different pricing, different work product. Um, and so again, you also have to talk to the people doing the work. Do they have a sound process or are they operating like a triage center? Are they making the same mistakes repeatedly matter after matter? And is this practice becoming easier to run as it grows or harder? And that's an important distinction because a sustainable practice should become more predictable over time. The firm should be able to understand what's driving demand, which clients and matters are most profitable, how does our work get delivered, and how do we make that more efficient? And where will our next opportunities come from? So for me, it comes back to those three questions. Demand continuing dependencies and repeatable predictability for reliable results.

Yeah.

It seems very counterintuitive as we scale it, get more easier, uh, to run the business.

If you mean the most people think that,

Oh, it's not like the most the, you know, it's not the usual way of thinking, right? Because like when we scale, we are expecting more, it it to get more difficult and things to get more complex, right? So what you're saying over here is that it should feel smoother, although things are getting complicated. Um, you know, the scale, it just amplifies whatever processes that are already working

Well and not, I think the point is, if what we're asking for is whether growth will continue, it's how well do we have this process down today? Because to your point, if it is getting harder as, as we get bigger and it's like, whoa, now we're going from feeling like we were Michelin star chefs to, um, you know, we're kind of like diner, diner omelets over here trying to get the food out. And, and the bell's dinging. I mean, you're not running a smooth operation and adding more tickets to the order. It's chaos. Versus we have a very simplified and easy way to pick up a matter at this firm. And also look, that's about brand value. Do people know what it will look like when you service them from your firm,

Right? A hundred percent. Yeah. I, I, yeah. I wanna kind of flip it from the software perspective. 'cause it, and this may help, you know, when you start a company, a few people do everything and they know everything, and there's a certain cap to that. That's the zero to one, right? And, and then what happens is you start to go one to a few. And and that's one of the hardest transitions for any software company or any business because you're having to develop proven processes I-E-O-E-O-S, right? Your your promise, your proven processes. And, and then it goes to another inflection where it's a few to many. And, you know, lean laws struggle at every phase in those transitions, and no one does it. Well, I mean,

It, I was gonna say everybody does. Yeah.

But, and that's, I, I think Dan, that Don, that's what she's getting at, is that, like, you, you would think, and it, it starts to CREs you, like, everything's going great, and then it breaks again because you're growing and you have to develop new processes and things change. And I, I think from an organizational development standpoint, that's also where software comes in. You know, where someone might start on a tool that has a certain capacity financially, I think that's all we do is revenue, revenue operations. And then what happens is they hit a, they hit a ceiling and they're like, Hey, this isn't working anymore. And that will happen with their document management. That will happen typically with other functions. And then they have to go out and look for tools. And this is where, and again, we're down market, you know, we're, we're talking, you know, 50 to, you know, anywhere from we're down market to small mid market, and they're terrible at buying software and even worse than implementing it. So you, that's where you get a lot of bad data and a lot of bad, you know, I come back with worse practices because the certain people will revert back to those worst practices that I, I talked about earlier. Well,

And I think, you know what, it's Jonathan. I think there's such a temptation to assume. Um, and I get it 'cause I'm a recovering lawyer myself. I practiced for 10 years. It's, we all assume this craft is so specific that no one could else, no one else could possibly do this the way I do it. And, and it's unique and perfect every time. And the truth is, by giving your team a reliable method, methodologies, templates, showing them what good looks like, you are giving them more room to focus on the things that do matter. And not to sit there and cobble everything together from zero to one every time, and instead focus on two to 10.

Yeah. And I, yeah,

I talk all the time about, um, law being the ultimate individual sport. Yeah. You know, the Socratic method, no one's gonna help you when that professor is just bearing down on you. As evidenced by the girl that sat next to my brother in one of his classes that just passed out when she was being questioned, she couldn't handle it. It, you know, the, the bar exam, it's just you. And then you start practicing and everything goes out with your bar number on it, and your license is on the line. So it teaches you to be very controlling and the way a business grows. There was a study done in the seventies that said, A business doesn't grow in a straight line. It goes through periods of evolution, and then it hits that ceiling that Jonathan was talking about. And it has to go through a revolution, and it goes through the revolution to be able to break through that ceiling. And the faster you can recognize that you've hit a ceiling and break through it, the more successful you're going to be. That there will always be ceilings, there will always be, you know, great expression, new level, new devil. Yeah.

Right. I know Don wants to move off. I'll say one thing. Um, 'cause I, I've done, I've, I've done over, it's probably going on almost 5,000, probably 4,000 calls with law firms. So think about the diversity. And the one thing that's true is that, uh, lawyers have strong opinions of how they think they should, like their invoices should look like, or their data. And, and I think sometimes the, that rigidness actually slows them down. Um, and that, that unwillingness and insecurity to let go and let others manage. And I think that's part of what the ball of blocking the, the, the, the ceiling is for many of 'em. Um, we're

Taught to manage risk

Mm-hmm. Mm-hmm <affirmative>. But it's, you know, I've, I've had animated conversations about very small points on an invoice in styling.

And the problem is, is that you manage risk to the point of increasing it.

Yeah. Jonathan, how should then, uh, law firms decide between those detailed financial reporting and a simpler dashboard? How would you Uh,

I don't, yeah, I don't think it's, uh, I, I don't think it's, um, I don't think it's an an and or I think that's the wrong way to frame it. Um, you know, I, I, I think that it's really about understanding the most important numbers, right? So a dashboard or a simple report is, is really just a means. But if you really don't know what numbers you're looking at, and I want, I want the numbers to be, I want you to think of the numbers at, at the 10,000 foot level and the more detailed level. So there's, there's five metrics that everyone should look up or everyone should be paying attention, which is lockup days. Lockup days is time sitting in WIP or time sitting in collection and measured in days realization. We already talked about collections, WIP aging, which is different than lockup days.

It's a different metric and a different variable and cache. So when you're looking at, it's not about how simple or complex the dashboard is. I mean, you want the data, the accurate, but the managing partners should be looking at just those numbers at the very highest level because they're looking across the firm. Now, some managing partners will go down into the weeds with certain partners, and that's just the nature of that, that particular managing partner. But then you go into the firm operators, the CFOs, the folks that are running day-to-day, and they need to go a level deep to, to shireen's point, you know, we have to look at the practice areas and look at these numbers. We need to look at the, the partners. We need to look at the different then sub areas to really understand the difference between noise and signal. And what happens in those dashboards.

And what comes and failure is that if they're from disconnected systems, you, you can't reconcile it out. And so the, this is the biggest concern. You get mistrust, and then people stop looking at the data because they don't believe the data. And many times they'll wanna talk away their problems. I've seen it live where like, oh, it's just because I had this one case and this, and like, no, you, that's why you have to be very regimented about looking, you know, constantly being on top of those numbers. And the last is the accounting grade truth. And, and so what I mean by that is we run revenue operations, you know, that's utilization realization, collections, time to money, and all the derivative things that are around that. And beside us is QuickBooks Online. We built our platform on top of that application, which is your p and l, your balance sheet and your statement cash flows.

And that reconciles out, you know, 30 to 45 days after a period. And so what the challenge is, is if those two systems aren't connected, you get stale data. So when you get this, this gap between the ultimate source of truth, which is your p and l versus what's happening in revenue operations, and so that create, that creates confusion around it. So it's really, we think it's very important that, that, you know, your, your core financial per instruments, your p and l balance sheet statement of cash flows are always up to date in real time and, and fully complete. But it's really those five numbers. So it's not about, I don't really think it's about a simple number versus a dashboard number. It's really about what are the metrics? And those are the metrics. Metrics we advocate other firms, especially in different practice areas and different models, will have different, uh, hot nuance, those models. You know, wip WIP is not the most important thing, obviously for a contingent firm, but to Brooks' point, velocity of, of cases is right. So there are different metrics for different operating models.

I, Jonathan, go, uh, yeah, sure. Brooke, go ahead. Okay.

It's interesting because I differ from Jonathan A. Little bit. I, I think of it in two, there are two buckets, which you kind of said two, I think a dashboard should be those five to 15 numbers that tell you what's going to happen. You need to be looking at like initial contacts. You need to be looking at sales calls because that tells you what's coming in. Because those sales calls are revenue in two months. Um, that tells you how much staffing you're gonna need in two months. Do we need to hire it? That informs capacity. Yes. You've gotta be looking at some production numbers, whip, um, how much is in your trust account, because I agree, every firm should have clients running, you know, building from the client's trust account, not chasing them down for money, and then have, you know, some numbers like AR or cash down at the bottom. So those really leading numbers at the top, the lagging numbers at the bottom, because if you're not making your weekly number at the top, you can see it and change it before it gets all the way down to the bottom, which is cash, which is where it really hurts. So you can see it early. And then all the financials that you talked about. And as the CFO, I swear, if any of my people are listening to this, they're gonna come after me with a hatchet.

I only care about the financials because they tell me where to go dig for problems. That's all they do. I can't, I, I can't change what's happened, but I can look at 'em and say, Ooh, those numbers don't look right, I need to go dig. And that's where it comes back, Jonathan, to what you keep saying, data, data, data, data. It's gotta be clean and it's gotta reconcile out.

Yeah. I think the thing I should have said was, um, it's not about simple or complex. It's about data that's actionable or that you can intervene on and you're going up funnel right? Uh, to the beginning, which is totally accurate, especially in a plaintiff's business in terms of, you know, deal flow coming in. But it's really the, the five numbers are those that can be intervened on. I mean, it's difficult to like not have a cash problem, but if you're seeing you have a cash problem, then you better go figure out if you have a line of credit, right? Or you gotta manage, you gotta manage what your partner draws are gonna be. So those are, those are actionable inter, you know, numbers that can be intervened,

Right? But I would much rather know that we've got a problem when our initial contacts drop three months before in my, um, divorce firm, my family law firm. People aren't, aren't setting up sales calls because let's figure out what's broken in our marketing.

Yeah, you, you're, you're right. Um, right. And, and that's, that's,

And you gotta fix it at every level. Yeah.

My first question I'm gonna pick out is one thing that we, uh, touched on a little bit earlier there work, uh, is the three times salary rule a useful test of associate profitability? Or is it a shortcut that hides bad pricing and excessive overhead? It's a bit paraphrased, but, uh, go ahead, Brooke.

Um, I think for an associate it's pretty bad because an associate should be closer to four or five. It's a partner that should be close to three. Um, I think it is a great place to start. I think the, the three to five X rule is, is really good, but it does need to be on the total cost of the employee. And total cost isn't just their salary, it's their salary plus taxes and um, and health insurance. So yeah, you have to start somewhere and mm-hmm <affirmative>. The thing you, Shereen was talking earlier about law firms that the top line's growing, but the bottom line isn't very often. That's because, well, it's January 1st, we better give everybody a raise, but we're a flat fee firm, or we're an hourly firm, and we haven't raised our rates to the clients. Well, let me tell you whose pocket that raise is coming out of.

It's coming out of the owners because nothing else has changed. And that's where some here profitability is going. So, you know, revenue can stay the same and your profitability can drop. So you really need to be looking at those, those multiples when you look to give somebody a raise, okay, I can give them a raise. The multiples going to come down. Do I need to pull another lever? Do I need to raise pricing? Do I need to have them bill more hours? You know, what is going to offset this? Or am I willing to pay for this raise out of my pocket as the owner?

Mm-hmm <affirmative>. So, uh, what is like the next best step for our owner who has asked this question? If, uh, it's a good starting place, but where should they be looking into as a next step?

I think an associate at five x, a senior associate at Fourex, and a partner at three x, and Yeah, absolutely.

Yeah. I, I think there's a little, you

Have, oh, go ahead. I think

There's some nuance there. Um, in, in wave the measuring, and I wanna bring it back to my world. Like you're, you're kind of looking at the result, which is a great, um, measurement, but you, there's some in-betweens in looking at their expected utilization. Um, so are there stop gaps on their utilization? Um, and again, although that's hourly, in the hourly model, because it's difficult to, to quantify that for flat rate work or contingent work, if you're not understanding the capacity, there still is play there. And then it's write down, right? So you're looking at what percentage write down or you're looking on that particular, um, that particular attorney. So if you're starting to see either bad habits of time tracking, if they're an hourly model, and or you're talking about work that's being written down, that's, those are direct indicators that you're gonna have an underperforming associate.

And then the question is, can you look at that under different parameters? Are there certain practice areas or clients or attorneys that they work for that they're more or less productive? So instead of just saying, Hey, it's all on the associate bill, more hours, you, there's other parameters that you can look at and try to understand. Well, to your point, I think you said, Brooke, like the data tells you, gives you an indicator, but you have to dig in and ask questions. Shereen said, you know, go walk down the hall and ask some questions. Like that's, that's how you solve that problem. But those are earlier indicators of their behavior.

And, and Jonathan, you're right there, there are so many different, there's so many different levers you can pull. And maybe it is moving them to a different practice group. Maybe it is it, you know, giving them better timekeeping, hygiene, there are all kinds of things you can do. Um, but at some point there is a mathematical formula. Sure,

Yeah.

That has to be satisfied. It's

Just,

Of course, how are we gonna get it done?

But the cost of, I mean, that's why you want to have good data. 'cause the cost of replacement is very high, right? So,

Oh my gosh, uh, two and a half to three x conservatively their yearly salary, I think.

Uh, yeah. That's great. Uh, advice. Thank you very much, uh, Brooke, and, uh, for tuning in, Jonathan. Uh, another question here I got is, what if one paralegal is handling the legal work and every new client call is hiring another lawyer, actually the wrong next move. Uh, Shireen, what do you think about this?

So, sorry, the question is what

Is Yeah, repeat the, yeah, repeat the question. If

The paralegal, if one paralegal is handling the legal work and every new client call is hiring another lawyer, actually the wrong next move, I think what they're alluding to here is basically if the paralegal is the bottleneck, if they are overwhelmed, there's so much inquiry going on, uh, how can they think about hiring? Like, are they, should they be hiring a new lawyer or a new paralegal?

Well, so are we saying here, this is a paralegal who's bogging down the intake process, or it sounded a little like, perhaps this was the illegal practice of law <laugh> for a moment, which I'm sure it's not, but it seems like we had a paralegal holding down a department or a firm, which I would say you have a bigger risk issue on your hands. <laugh>.

No, no. I think that the inquiries are being missed.

Yeah. Oh, so intake inquiries. Yes. Got it. Yeah, I would say, um, so this is an interesting point because unfortunately, something I see far too often is firms that spend a lot of money on marketing. And so whether that's waning around at conferences, um, paying for, you know, click, pay per click, um, ads space, Google ads, Facebook ads, et cetera, um, putting a lot of effort into redoing the SEO on their website, and then guess what? Who's picking up the phone? Nobody who's calling back these clients? Nobody. And I'll tell you, I've done secret shopper calls at my clients, and the managing partner is more than, more often than not horrified when I tell them that they wouldn't believe how intake is being handled. Especially if you are in a B2C business. The truth of the matter is, somebody's probably calling you on their worst day.

They've been in a big accident, they're worried about death or somebody's dying. They are considering a divorce. They have a major issue. So point being, you don't have any trust built. This is not the world of general counsels of Fortune 500 companies who know who's who through the grapevine. They're gonna go to the next number on the list and there goes your marketing budget, you put all this time and effort in and no one's helping. I think to answer the question directly, do we get a lawyer involved? I think it's more to do a reasonably decent audit of your intake process. Number one, have somebody call into your firm, like I said, do a secret shopper and find out what is it like when people call your firm from the outside. And then you really have to train the people doing intake on how far to go, how to do the handoff, how to have empathy, how not to rush people. Um, this is a client service business at every level. And so these things matter quite a bit.

So Shireen, I think another question, and, and you said it auditing that intake, I, for the past 10 years, everyone has been going basically to non-attorney salespeople.

Yeah.

I am seeing a return to attorneys getting involved in the sales process. So, you know, that's a question when he, or that's something to consider. When Don first read this question, I was like, why would you hire an attorney? The attorney doesn't seem to be the bottleneck in any way, shape, or form. But to your point, we're wasting all these marketing dollars if the attorney is the one doing the sales calls. If, if this firm has gone back to, or has never left the attorney doing the sales calls,

Right? Maybe it

Is an attorney.

Yeah, it could be. It has to be a well-trained team. It's also about how much air are you letting out of the balloon when we're not getting to a signed engagement letter right away. I have a client, personal injury client, if it's the right kind of case, they stay on the phone with that client. Well, an Uber goes with the engagement letter in the car and they stay on the phone until that letter is signed and comes back. Holy cow. 'cause they wanna close 'cause they wanna close the deal. Yeah.

I I think that there's one other point here that, um, is not being said, which is something we recently really got better at at my company, Atlin Law, which is, you know, you have to understand what your ideal client is and you have to do what's called an ideal client profile. And when you, and, and many times your data will tell you who your ideal client is. I mean, there is what do I enjoy to do? What is my personal affinity in terms of law? But when you're talking about a diverse practice, really understanding what type of client I want to attract. And many times they go out and market and they're marketing a brand and they really don't know who they're trying to attract and they're not qualifying those, those opportunities. And I, you guys are talking about high volume. I'm even talking about family law that might be slightly below a personal injury or even business to business, which says what kind of client do I wanna work with and understand that niche relative to that lawyer's practice area. And, and you know, that's all the data we've been talking about at the manager partner level and at the firm level. So I think there is, um, there is other layers to helping to qualify that call because many times less clients are better clients.

Oh, for sure. You don't wanna catch a lot of boot boots in your net. There's no point.

Yeah, I did that in my own company for my CFO company. We, I finally said we're on too many sales calls. Yeah.

Our this

Is wrong. They're, they're not our ideal client.

Yeah. This year our M QLS dropped considerably because we timed up our M qls, but our revenue went, our revenue and close rates went through the roof.

Yeah, but how's your profitability, Jonathan

<laugh>? Um, we're getting there,

Which is beautiful. It's interesting because I had to bring it home because I think we're at, it's interesting

Because in SaaS we look at cac, right? Yeah, yeah. So my, my cost of customer acquisition is great. My net revenue retention is, is building and strong. We're becoming, we're kind of getting right now in that inflection point where we'll move to profitable and then you, it's kind of smooth sailing because our, our long-term value of our clients, they, our clients sit lean, law clients sit on average mathematically, it's stupid, it's 21 years, but it's ti we, we measure it at, we measure it at 10 years, um, in terms of long-term value. 'cause there, we, we have really high retention rates.

Good. Jack,

I really like that. Thank you very much for that Shereen. And, uh, I mean outta do it outta curiosity, <laugh>

Sound like my board member.

Um, just outta curiosity, is it okay sometimes, just like Jonathan said, you know, he, his is feeling that smooth sailing. Is it okay to sometimes cut back on profitability in favor of smooth sailing? What do you think Shereen?

It's a choice. I think that kind of gets to what Brooke said, which is what do you care about and what's important to you? I think it's more what kind of business do you wanna run and can you attract the kind of talent that matters and the kind of clients by having, um, the culture that you have, whatever that is. And so I think, look by definition, and I'm sorry to say it, but 90% of firms are not in the top 10%. That's just what it is. And so it's okay, but we all, it, it is what it is. And if you wanna be at a certain level, I think it's always the right time to do the right thing. And either you make that choice or you say we're okay with having something more relaxed, but it's also okay to say then we're not in the top 10% of that.

Yeah. I, I, I find that in, in the, in the startup world, you have, uh, essentially a scalable business and a lifestyle business. Hmm. And a scalable business is one that you would go get investors and it has the ability to scale it. And the minute you take a dollar, you're buying into that track. And there's no, there's no way around that. The inverse is a soft, essentially a lifestyle business. And I think the same goes with law is that some lawyers can make a lifestyle business and they just, they're, if you look at their numbers, they're not perfect, but they run a really nice small practice. They make a fair, they make a really good wage, and they can over time, you know, live a great life. And there's this pressure when you start to grow, oh, we gotta grow more and we gotta grow more. And that's what I think Brooke was really getting at early in the conversation, which is, and and you just said, Shereen, no, you don't, you can, you can decide that this is what we want.

Well, and these are incredibly high margin businesses. And so the the problem, but the good part is a lot of firms don't know how good they can have it.

Right? Exactly.

Yeah. What I tell firms that they should be taking home anywhere from 30 to 50% of revenue. They're like,

<laugh>.

Anyways, I'm like, I think that wants to, to go.

I love this. I love this, uh, point over here. And with that, we have arrived at the top of the hour. Before we end the session, I wanna ask each of the panelists a golden rule, uh, a 62nd golden rule for using the numbers we have discussed to build a healthier, more profitable law firm. Shireen, please start us off.

I'll just say leaky buckets are an expensive way to gather water. So there's your argument for profitability.

Okay. Uh, wow, that's Jonathan. 10

Seconds. That's impressive. Yeah.

<laugh>.

Um, you know, I don't know if there's a golden rule, but what I would say is that, um,

Most firms harden in how they think about their businesses. And I think what we're in a time right now where being flexible, being open to change and really beginning to understand data will have a magnificent effect on your business, whether that's on the lawyering side or on the, on the financial operations side. And it's not a perfect rule, but it's the idea that, that what you're doing today can always be improved. And you have to be open to change both at the macro managing partner level, but all the way down to the firm operators. And if you're hardened, you're gonna miss an opportunity, uh, for growth. And, uh, and I, I, I just, that's a mantra that I think about

Magnificent. Thank you very much Jonathan for that. Uh, Brooke, take us home.

Um, I think the first thing I would say is, is look ahead. Look at those leading numbers so that you can fix things before they become a problem. But really the most important one is rev. Revenue is vanity and profit is sanity.

And that brings us to the end of another practical conversation. Uh, big thank you to Shirin Halal, Jonathan Fishman and Brooke Lively for sharing their experience and perspective. Shereen reminded us that growing revenue does not always mean the firm is becoming healthier or more profitable. Jonathan showed us why clean financial data, better workflows, and the right metrics matter when making business decisions. And Brooke brought it all together by reminding us to pay attention to the numbers that tell us what is coming, not just the numbers that tell us what already happened. Um, the big takeaway from today's conversation is Simple Law firm growth is not just about making more money. It is about understanding what is driving that growth, protecting profitability and building systems that make the business more predictable. And if this conversation has you thinking about where your own firm could improve, that is exactly where Equa Marketing can help. Equa is offering dominate law listeners a complimentary 60 minute marketing strategy meeting where a senior strategist will take a closer look at your firm's online presence, visibility, and growth opportunities, no obligation, just a useful conversation and a clearer idea of what to work on next. Book your complimentary session at www.dominantlaw.com/msm. Um, before you go follow the Dominate Law Podcast and share this episode with another law firm owner or leader who could benefit from it. I'm Dona Deisha. Thank you for listening, and we'll see you in the next