Three ways law firms lose a lot of money
(and how to avoid them)

by Morag Latta, Director of Legal Product and Marketing, Thomson Reuters 

three ways law firms lose money (and how to avoid them)


In an increasingly tough market for legal services, savvy law firms are getting a competitive edge by commoditising processes that eat into fee earners’ time. This article looks at three of the most common – and costly – mistakes law firms can make in this area and outlines effective practice management strategies firms can employ to get it right.

Recent Thomson Reuters research reveals that many small to medium law firms could be losing a lot of money because of inefficient practice management processes and misuse of essential technology and IT solutions. Yet many firms are unaware that they even have a problem, or that resolving these issues can be an extremely simple and financially rewarding.

Mistake 1: Not automating practice management processes

One huge area of inefficiency among small- to mid-sized law firms is their failure to make use of the wide range of powerful practice management systems available. In fact, from our own research, we know that a large number of legal professionals still rely on ‘manual’ processes for day-to-day tasks. This includes workflow management (41%), legal research (38%), tracking billable time (37%), client cost-ledger (35%), document management (31%), and document production/assembly (19%).

On the flipside, firms can save a lot of time simply by using the automated solutions in areas such as workflow management (50% average time-saving compared to manual processing) legal research (50%), document production/assembly (50%), tracking billable time (25%), client cost ledger (25%) and document management (25%).

Streamlining these processes can have a direct impact on a firm’s profitability too. Take document assembly; on average, taking instructions and drafting one of three types of common legal document manually takes an average of 86 minutes, meaning an automated solution could save 46 minutes, according to a 2011 study by LegalFutures. By manually producing just three documents a week, a senior solicitor could be wasting $1,350 each month in lost billable time.

As these statistics suggest, there’s a compelling case for law firms to look towards practice management software and automation solutions that can deliver time, and therefore cost, savings. This doesn’t necessarily mean a huge investment either.

Mistake 2: Not accurately tracking billable hours

We know that many professionals still manually track their fee earner’s billable time, with more than half (56%) admitting to generally underestimating their hours. Just 18% of firms said they fully automated the process when it came to tracking hours. The average inaccuracy in manual time keeping is somewhere between 30% and 40% of time recorded meaning there is some serious billable time being lost: something many small and mid-sized firms can ill-afford.

When it comes to billable time, getting it wrong can cost a lot of money. Based on a typical senior solicitor’s charge out rate of $300 per hour, underestimating a fee earner’s time by 40% equates to a potential $20,000 a month in lost revenue.

The research also highlighted a dearth of fee-earner time analysis, with just 21% of firms analysing fee earner’s figures on a monthly basis. Sixteen per cent did this every six months, 37% did it annually, while 19% never did it at all. Firms who fail to do this regularly never get a true picture of how their fee earners are spending their time, and therefore struggle to improve any aspect of their time management.

Accurate time recording and billings analysis lets firms better estimate, resource and ensure the profitability of matters, regardless of whether they’re charging on a fixed priced or hourly basis.

A sophisticated practice management system will solve many of these issues, and can – in theory at least – make a firm thousands of dollars annually in extra income. Most systems come equipped with a variety of sophisticated time recovery tools, allowing fee earners to track their hours, and even automate their billing with the firm’s telephone systems. This can result in significant improvements to capturing billable time and has the added benefit of reducing the associated admin-heavy requirements manual recording places on professionals.

Mistake 3: Not properly training staff in new technologies

Another surprisingly common mistake made by law firms is their failure to commit to appropriate levels of staff training in new technology and systems. Our research found just 11% of small and mid-sized firms offered formalised training for newly adopted technologies. Only 17% said they got the most out of their workflow and research tools and more than three-quarters claimed this impacted negatively on their time efficiency.

At best, failing to train staff properly will lead to them failing to make the most of your technology. At worst, there is the potential they will input data incorrectly and this will have a severe negative impact on your service delivery and business performance. Clearly, this is an issue, especially if you’ve spent a lot of money investing in new technology.

Often the biggest challenge in delivering any new IT system is bringing staff on board with the cultural and workflow changes associated with a new technological regime. For example, persuading a busy legal secretary that they have to re-learn their administrative processes can be a huge challenge, especially when the move is perceived as disruptive to the status quo.

A starting point should be formulating a structured communication plan to clearly, concisely and effectively communicate the bigger picture to employees, whether it’s about saving money or improving efficiency and workflow. It staff negatively perceive a new system as something else they have to learn in an already busy working week, proper technical system training can help encourage user adoption and address any lingering cynicism.


The three mistakes I’ve outlined here are surprisingly common especially amongst small amongst firms that lack dedicated IT functions and infrastructure. The good news is that firms of all sizes can usually resolve each of these problems very easily. With the right approach, they can even become seriously efficient.

One thing for certain is that firms who fail to adopt new technologies leave themselves exposed to being less competitive in a very competitive market.


Professional development in 
different areas of law

Are great lawyers born?
Does your personality dictate how far you go?
How to become a rockstar lawyer
4 easy ways to raise your professional profile
Silq SPP tile

Lexis Nexis Lower square ad