How legal tech can cut overheads and make firms more profitable

How to determine overheads

Before we can discuss the best ways to maximise your firm’s operational efficiency and profitability, we should first understand how we calculate these numbers.

Simply put, the best way to determine your firm’s overhead costs is to add up all of the expenses that aren’t going towards the lawyers’ earnings. Typically speaking, overheads are usually rent and utilities (monthly recurring expenses). However, you also have to consider the cost of additional personnel within the firm.

Since the lawyers are the ones bringing the money in, their salaries shouldn’t be counted towards overheads. Also, considering that they are usually splitting the profits, their payroll is separate from everything else. Therefore, when calculating your overheads you should include salaries for people like paralegals, receptionists and anyone else who doesn’t have a law degree.

Another way to look at it is that any expense that doesn’t lead to billing a client should be considered as an overhead. For example, any investments in new infrastructure, technology or operational systems can also count (i.e., remodeling your office, buying new computers, etc.).

What contributes to high overheads?

One issue that many firms face is the fact that appearances can matter just as much as anything else. That means that renting spacious offices in a nice part of town can contribute to the value and prestige of your firm, which can provide a competitive edge. Although it also means that you can charge more per hour, the higher operational costs do have to be taken into consideration.

Overall, if you are a large and established firm, there are a couple of benefits that come from getting a bigger, more lavish space for your team. First, it will help sell your firm to prospective clients, especially those with deep pockets. Second, it will ensure that you can retain better talent, since most lawyers want to work in a nice office, not a space in a strip mall.

The other primary reason that firms can have such high overheads is that many of them retain too many non-legal staff. Unfortunately, the more people you hire, the more administrators you need to manage everyone, which leads to a vicious cycle of growth and higher expenses.

That being said, these issues are usually prevalent in high-end firms that have been around for a while. If you’re still relatively new, then you can probably get away with cutting costs and making your operations leaner. Fortunately, legal tech can help facilitate that change, which will help improve your overall profitability.

How legal tech can alleviate overheads

For the most part technology and law firms don’t seem to go hand-in-hand, but that’s not to say that they can’t work well together. Although conventional wisdom says that most lawyers are slow to embrace new tech, the fact is that many smaller firms can benefit greatly from utilising such policies and procedures.

So with that in mind, let’s look at a few of the ways that legal tech can help you trim the fat from your overheads and put more money in your pocket.

Virtual law firm

Although there are plenty of clients out there who want the full-service experience in a lofty building that comes with a lot of street cred, there are plenty of people who are less concerned with your physical space and more concerned with the cost of your services.

One of the best ways to cut down on overheads is to trim your operational costs, such as rent and utilities. By running and managing a virtual office and law firm, you can minimise your overheads substantially since you’re doing most of your work online.

The first question you’ll probably ask is “How is that possible?” Well, there are a few ways to make a virtual law firm a reality.

First, when it comes to meeting clients you can rent meeting spaces on demand. Therefore, you only spend money when you have to instead of maintaining a full office at all times. Overall, you can work from a much smaller location, or even from home if necessary.

Second, when it comes to mail correspondence, there are plenty of services that allow you to maintain an office address without the high cost of rent. Depending on where you live, you may be able to secure an address in a ritzy part of town and rent spaces in the same building. This way, you can maintain your prestige at a much more affordable rate.

When it comes to day-to-day operations, running a virtual law firm is relatively easy. You can utilise remote assistants to handle your calls and correspondence, and you can keep all of your files and documents in the cloud for easy access.

Overall, it’s much easier than you might think to run your firm digitally, and the savings on overheads could mean that your profit margin is much higher than average. That being said, running a virtual law firm usually only works if you’re the only lawyer, so if you plan on expanding your operations by bringing in additional attorneys, you may have to upgrade to the real deal instead.

Document organisation

As we mentioned, anything that doesn’t go directly towards client billing should be considered an expense. While you can bill for things like document review, it is usually at a lower rate, and it doesn’t include any organisation you do outside of working with your clients.

Therefore, implementing legal tech that can help with documentation is probably going to be one of your most crucial investments. Not only will digitising your paperwork make it much more accessible (especially remotely), but it will save you so much time when it comes to managing everything.

Let’s go through one example to get a better idea of how legal tech can help with document organisation.

Accessing a client’s documents is as simple as looking up their case file on a central server. Instead of having an assistant or paralegal fetch the paperwork for you, you can bring it up on your computer instantly.

Multiple people can access each document at once, saving time and money on creating copies for all involved.

If any paperwork is damaged or destroyed by accident, it can be quickly recalled and printed out from the digital file instead of having to track down original copies or recreate them from scratch.

Clients can access and share documents with their legal team much more efficiently.

As you can see, upgrading to a digital management system will not only reduce your overheads but it will also improve operational efficiency. Overall, if it takes you less time to complete a task, that’s more time you could be spending on your client’s case.

Communication tools

One of the problems that lawyers are facing today is that there is so much more competition, while the pool of potential clients is shrinking. This means that firms have to be more competitive if they want to stay ahead.

Thankfully, clients are already embracing new technology, which means that a firm that does the same will probably have a much easier time of attracting new prospects.

When it comes to communication, legal tech can help in a variety of ways. You can create an app that users can download to connect with your firm directly. You can text back and forth with clients, which means that you can maintain multiple conversations simultaneously instead of putting people on hold. Online, you can make it easy to connect with your firm by using a web portal on your website.

Overall, technology has helped to bring people together. The proliferation of mobile devices will only continue, which means that firms that embrace this connectivity will have a much easier time of attracting and retaining clientele. When you consider how much competition is out there, every advantage you can use will help improve your bottom line.

On the flip side, digital communication methods can lower your overheads as well. Consider these cost-cutting measures.

Virtual assistant – either have a remote worker handle your correspondence or set up a digital receptionist that can manage your calls and texts.

Instant communication anywhere – by forwarding calls to your mobile phone, you can connect with clients no matter where you are instead of waiting until you get back to the office to check your messages.

Maintain fewer phone lines – with online phone packages, you can spend less on your utility bills. While larger firms may not have this luxury, smaller ones can usually benefit.

Bottom line – embrace technology and save money

As the world becomes more digital, it is imperative for law firms to keep up with the times. By utilising various legal tech solutions, you can significantly reduce your overheads and keep more of the profits for yourself. Best of all, both large and small firms can deploy these kinds of solutions, meaning that there is no reason not to shift to a tech-first approach.