Forecasting Is Your Secret Weapon: How Law Firms Can Transform Projections into Competitive Advantage
Traditionally, law firms have shied away from formalizing business-value forecasting for a variety of reasons. Most of the hesitancy stems from the fact that individual stakeholders do not want to be held accountable for outcomes over which they have limited visibility or control. As a result — because fee earners have no personal incentive to put a stake in the ground — plenty of firms just float an annual revenue number at the beginning of the year, call it a day, and wait to see what happens.
I’ve worked at four Am Law firms during the course of my career. I’ve seen the good, the bad, and the ugly, and my experience tells me that that every firm benefits from formalized forecasting. When done right, law firm forecasting can become a primary driver of not only business agility and growth, but also highly accurate resource planning and allocation. The resulting alignment between strategic goals and resource allocation is key to increasing revenue and profitability, optimizing operations, and building the agility required to sustain growth during economic uncertainty.
Although up-leveling your firm’s forecasting may seem daunting, it’s worth it. And I’ve got some solid advice and technology tips to share that will help you improve the efficacy of your projections.
Document the Known Quantities
Successful law firm forecasting starts with ballparking the macro factors and incrementally zeroing in on the micro elements to create a reliable projection. For instance, if you know that Client ABC has reliably contributed $1 million to year-over-year revenue for a 3-year period, it’s reasonable to plug Client ABC into your forecast at $1 million.
If you can drill down into that projection and specify the mix of services that has historically fed the $1 million revenue capture — segregating bread-and-butter matters and noncyclical engagements — you might find that 70% of total billings are attributable to steady, repeatable business. For instance, if your firm assists Client ABC with a reliable number of labor disputes and a steady cadence of patent applications that total roughly $700,000 annually, it’s safe to plug in $700,000 as a baseline forecast for that client. Your best-case forecast can include the remaining $300,000 — likely attributable to unpredictable litigation.
Build Assumptions for Episodic Work
There’s no disputing that steady, repeatable business is the fulcrum of any firm’s financial and operational health. That said, firms make really good money on large-scale episodic matters.
When it comes to forecasting, episodic work presents a unique set of challenges: You don’t know when it’s going to land, or what resources you’ll need to staff these matters. To contend with the uncertainties from a forecasting point of view, you need to treat episodic work as upside — you can’t count on it to cover your baseline operating budget.
From a planning perspective, episodic work requires some finesse. You start by tracking what’s in the pipeline, and applying assumptions based on historical win rates. For example, if you know that you have ten prospects in the pipeline and your firm’s historical win rate is 80%, you can reasonably predict that your firm will close eight matters, and add that estimated revenue to the forecast.
Fine-Tune Your Resource Planning
Keeping a sharp eye on the pipeline — and forecasting both cyclical and episodic matters — puts you in a good position to assess which resources you will need, when you will need them, and what they will cost. When you can reliably project an increase in revenue, you’re able to justify preemptive spending on the overhead side of the equation to maintain the agility you need to staff episodic matters.
Without a forecast, you’re stuck scrambling to onboard new hires and reassign associates on the fly when these opportunities come to fruition. By contrast — looking at your forecast — you can predict that you’re going to need, say, two fifth-year associates across a variety of matters during the coming six months. This insight gives you not only the benefit of making thoughtful, unpressured hiring decisions, but also the opportunity to onboard and train new hires to the standards your clients expect.
Implement Best-in-Class Technologies
Your forecast is only as reliable as the data that feeds it, and the technology that fuels the underlying insights. Transforming law firm forecasting into competitive advantage requires a centralized data repository, firmwide access, real-time visibility, and the right tools and features to get the job done.
If your firm struggles with disjointed practice groups, siloed data, and manual processes — as many do — forecasting will be a long-term work in progress. That’s not to say that you can’t get the ball rolling using the methodologies I described above; progress is progress, and once your firm witnesses the benefits of improved forecasting, the technology investment will follow.
At Perkins Coie, we look to Intapp for the tools that will help us better track and report on forecasting. In our quest to transform our forecasting capabilities into competitive advantage, Intapp is more than a service provider; they are a valued partner.
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To learn more about the benefits of implementing business-value forecasting at your firm, register to watch the “Leveraging Business-Value Forecasting” webinar replay.
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