This article is written by Rajat Chawda from the Institute of Law, Nirma University. This article explains the various ways through which a law firm can increase its revenue.
Money is considered as one of the best incentives to engage in work. With capital, a person or an organization has the ability to expand any business further and reach new avenues. Therefore, money is an important asset which any person would not risk to lose at all. The same can be said for the various law firms, whose main agenda is to earn money by providing different services and client satisfaction.
Therefore it becomes important to understand how law firms generate revenue, what are the various practices which are more profitable? What are the new avenues of law which are yet to be explored and potentially profitable?
A law firm is generally a partnership where two or more lawyers agree to work together and share profit, loss, and liability accordingly. It is important to understand the type or kind of law firm because it ascertains the amount of risk in a law firm and the revenue it can generate to partners and keep running the business.
Types of law firms
Law firms can be categorized on the basis of strength & arrangements or the practice of law that the firm deals with.
On the basis of arrangement
This is based on the agreement between the partners for the kind of law firm they need to establish. The arrangement determines the overall sharing of all the profits, losses and liabilities:
In this, a single lawyer is wholly and solely responsible for profit, loss, and liability of the firm.
Where two or more lawyers of the firm work together sharing profit, loss, and liability altogether.
In this type of firm, stocks are provided to the lawyers.
Limited Liability Company
In this, the lawyers-owners are members of the firm but are not directly liable to the third party creditors.
Limited Liability Partnership
In this lawyers-owners are partners but no one is liable for any act of negligence of any other partner.
On the basis of the strength/size of Law Firm
The size of a law firm determines the revenue a law firm will be able to generate. It is the principle of efficiency, more is the workforce, more is the amount of output produced in a given duration of time. The same can be inferred from the size of the law firm, the more the number of associates a law firm comprises, the more billable hours it charges and increases the output provided and therefore the strength of the firm increases the total revenue of the firm.
In terms of strength the law firm can be classified into the following:
Boutique Law Firm
These firms are limited to small cities and towns and are limited to conventional practice. Lawyers are specialized and practicing in only one kind of law.
Virtual Law Firms
Use of modern communication technologies to conduct business with no physical presence. This is yet to be developed in India.
Big Law Firms
The law firms hire a large number of associates and charge more. These full-service law firms.
These firms consist of lawyers specialized in different areas of law.
The global presence of a law firm to represent a client at an international level.
It should be kept in mind that the strength and arrangement of a law firm is only an initial plan of how a firm will function. A firm will always generate revenue with the quality of service it provides and the value it adds to a client’s interests. Therefore, it is better to diversify the portfolio of practice areas and specialize in every aspect to reach on top of the competition.
Business Models: Increasing the revenue in the right way
The types of law firms discussed above are the first step towards the foundation of a law firm. But the above-mentioned types are general in nature. What is the trend in India? What most business models do law firms follow in India to generate revenue? Is choosing a business model sufficient to earn revenue? Why do some law firms earn more revenue than others? What are some other ways through which law can increase its revenue?
In India, most of the business model of law firms is partnership-based and provides services as a ‘Full-Service Firm’. Search for the major law firms in India like SAM, AZB, Trilegal, all are partnership firms and established as a full-service firm. Why do most law firms select this model?
- Partners are always together
‘We rise together or, we die together!’ This is the major reason why a partnership model is preferred amongst any other business models as all the profits, costs and liabilities are bear by each and every partner of the firm. This creates more accountability and responsibility of partners towards their work.
Partners add more revenue to the firm because of their specialization and expertise in the field of law which provides for credibility and impact on the market to bring more clientele to a law firm’s portfolio and increase the firm’s overall revenue.
- Role of Employees
Have you ever seen a person who claims to achieved success all on his own? If yes, then he is lying, no one can grow himself without the help of others (Remember, seeking feedback is also a kind of help). For a law firm, employees are its assets, a firm’s revenue depends on how dedicated and interested they are with their work. A law firm does not include only Managing Partners, Partners, and Associates. It also includes paralegals, logistics and other supporting employees, which are also crucial for a law firm to increase its revenue. A law firm’s revenue depends on how these different departments interact and work with each other to increase the efficiency and effectiveness of the works executed. Therefore, it is important for a law firm to provide a healthy working culture for its employees, so that the firm can strive for more revenue.
- A diverse practice bills more clients
By diversifying its practice areas a law firm tries to make its presence in every other field from which it can churn the money out.
Look at all the major law firms, all are rendering their services in all the major legal fields. They are also investing their valuable money and time in researching in developing areas of law. The ones which started with only one practice now also have diversified their portfolio. Why are they doing so? The answer is simple, to be prepared for future potential revenue. A headstart always helps in a race, by investing law firms are preparing themselves for the potential revenue from the developing fields of laws.
- Role of associates
The interest of an associate towards his work mostly depends mostly on his peers and the work environment he is getting in a law firm. So, it is crucial for a firm to look after its associates, resolve tensions, and conflicts within associates, train them with organizing adequate workshops and taking feedbacks. A person thrives more when he is put under the right and healthy environment, therefore an associate will show interest towards his works when interest is shown towards him, towards his work. It is important that the law firm’s leader build a team to grow together and not hire a group of employees to work for him.
These are some of the factors which a law firm should focus on while selecting the business model and setting the foundation of a firm. But why still some law firms earn more than others?
Why do some law firms earn more than others?
Choosing a business model is the foundation step towards starting off a law firm, but to increase the revenue a lot more is required. Majorly, a law firm will be successful than others if it focuses on these following:
Remember the saying ‘Jack of all trades, master of none’?. Being a jack of all trades may bring more revenue and clients but for a short time if services are rendered are not ace and the client is not satisfied with the work. Initially, a law firm should focus on a selected area of practice, make credibility in the market, increase the clientele, take feedback regarding the services rendered and then gradually increase the area of practice. If a law firm starts with focusing on all areas of practice without specializing in any particular field is less likely to generate more revenue. Moreover, it might fail to gain credibility in the market.
Building a team
There is a difference between an employee and a team member. An employee just works as per the instructions given by the employer. But a team member takes part in the interests of the employer and actively participates in the growth of the firm.
A good leader carries the team together towards success. Law firms flag if the leaders are weak. An effective leader time and again articulate the firm’s goals and objectives, motivate partners and associates. Good leaders have the quality of consensus-building, fairness, patience, and good communication skills. All firms have leaders, but most of them lack leadership. The leadership differentiates between a successful law firm and an unsuccessful one.
Practice Management and Financing
How a law firm can be called good and successful, if it is not able to keep track of guidelines, manage client information, keep a check for conflicts, draft documents, blend the practice of all law with the technological developments to make the firm more efficient and effective.
Finance is the source of life for a law firm. Through capital only, a law firm is able to keep running. Therefore, it is important to prepare a budget for a law firm and keep track of whether the money is being effectively utilized and not wasted.
Are there any other ways to increase revenue?
Merger & Acquisition between firms
It is the best and easiest way to increase a law firm’s revenue and clientele. By M&A, law firms increase their workforce, practice areas, and clientele. The overall increase in the structure of the law firm results in an increase in revenue.
Compensatory plans are the different ways in which a law firm remuneration an associate. Generally, a law firm pays an associate with the number of clients he brings to the firm and the number of hours that client is billed. But it is an old way to reward an associate. A successful law firm should reward an associate on the basis of his tasks performed and the quality of the work done, in the form of bonuses, equity or in any other form. The better compensatory plans encourage an associate to work more effectively and efficiently and hence adding more value to the firm’s revenue.
These are some of the factors, applying which a law firm can earn more money than other firms.
Working of law firms
A conventional law firm diversifies the area of practice with time to increase its revenue, provide services in various fields of law and provide legal solutions. But recently, this practice has been changed. A law firm now in order to make credibility and generate leads which last long and create more impact, have started to engage in the areas of researching, legal products, and legal training too. These are explained below:
What can be a better USP of a law firm which can resolve the problems of a client efficiently, effectively and as per the interests of its client? This involves client counseling, dispute resolution, legal arrangements, contracting drafting, compliance due diligence, etc.
Research involves policy-making, analyzing legislation, and in-depth study of law to contribute to the academia of legal. Research enables a law firm to create a lasting impact as their research can be referred to as a citation and thereby generating leads and prospective clients.
With the rapid change in technology, law firms are also indulging in research to improve and modernize the legal fraternity so that it can dispense justice efficiently and effectively. In 2017, CAM setup the CAM Innovation Lab to embrace the opportunities technology and use it to provide the best in class services to the clients.
The major setback effectiveness and efficiency in the legal industry is the gap between the theoretical knowledge given in the institution and the lack of practical knowledge on the ground. To cover this up, a lot of law firms and lawyers engage in legal training by conducting lectures, seminars, workshops or internships. To improve the practical skill of lawyers and aspiring lawyers, the law firm improves its potential efficiency by improving the quality of the workforce and thereby increasing the revenue of the firm.
Apart from this, there are also new areas of law that a law firm should not ignore and indulge and specialize in them because there lie the potential business and revenue which a law firm will lose if it does not regard these areas of law.
New areas of law which are developing and profitable
Law is a dynamic subject if one needs to remain in the competition he needs to update and familiarize himself with various growing fields of law. With the advent of globalization and rapid development in technologies, the conventional fields are not the only place to increase revenue. In the competitive laissez-faire market, there are various organizations coming to a consensus to work together, or seeking efficient means to resolve their disputes, worried whether their online data is secure and what can be controlled, protection of the company’s brand and various other things.
If a lawyer can resolve such difficulties, he will be earning a considerable more money than others in the market. A law firm earns a significant clientele by specializing in such fields and establishing its credentials. Some of the areas of law which are developing and profitable are mentioned below:
Mergers & Acquisitions
Every business aims to increase profits, increase clientele, generate more leads and reach the top of the competition. Therefore, every business looks for the opportunity to work with others, acquire other businesses and expand itself more in the market.
Look at the deal feed of Legally India, daily millions of dollars of deals are made to expand the avenues of business. A law firm has to also deal with the Competition Commission and Security Exchange Board of India. A transaction of such type requires a lot of speculation, must adhere to compliance rules and it is not a simple and easy task. A lot of revenue can be earned if a law firm commands expertise and credibility in this field.
Intellectual Property Rights
R&D is an important part of the development of new technologies. Billions of dollars are invested to develop new technology. The vast amount of time is invested by authors to produce novel intellectual creations. When these creations are introduced to the public it encourages others to further develop the innovation but at the same time, it is possible that their ideas might get stolen. Therefore, to protect their novel innovations and works, there exists trademark, patents, and copyright under the field of intellectual property rights which provides protection to business marks, novel innovations, and artistic works.
The different areas in intellectual property include trademarks, patents, copyrights, and related rights, Industrial Designs, Layout Designs of Integrated Circuits, Plant Varieties, Information Technology and Cybercrimes, and Data Protection.
The work in IP ranges from drafting contracts, litigation, filing and registering the trademark, copyright or patent, detecting and prosecuting IPR infringement, managing an IP portfolio, etc. A dedicated IP Law firm can earn enormous revenue if specialized in each and every branch of IP.
It is said that it is good if a person does not get to visit three places in his life: Police Station, Hospital and Court. In India, the condition of the judiciary, in terms of faster dispute redressal is not good, the Supreme Court of India alone has 59,272 cases pending before it. It takes years through the court to resolve a dispute. There are a lot of business companies that need binding speedy dispute resolutions and do not want to waste their capital on lawyers dealing with a single dispute for years. In this scenario, arbitration provides an alternate dispute resolution to contending parties to sit together and come to a conclusion. In this way the outcome reached would be favorable to both the parties and therefore will be obliged by both of them. Earlier, people used to hesitate to go for arbitration and preferred to litigate but with the changing scenarios, a law firm that specializes in dispute resolution will have an ace against the other competitors.
This field is emerging rapidly with the pace of development in technology. There are various legal issues in this area from disputes in online trades and transactions to a simple click on the ‘I Agree’ button on terms and conditions of a website. To specialize in this area, a person should learn about the technical aspects of a business, its vulnerabilities, and various legal aspects involving the same.
A law firm, which can provide specialized services like Software Licencing, Dispute Resolution in tech, agreements for cloud service, IT services, etc will definitely give more revenue as this field generates a value to support a global population of over 7 billion people and growing.
Media & Entertainment Law
As per a report by IBEF, this sector is expected to grow up to $37.55 billion by 2021 in India. A media company has to comply with broadcasting rules, advertising procedures, enter into a contract with various persons and logistics, resolve disputes, comply with cyber laws and many other areas.
A law firm providing services in such a field can chunk out some revenue from this $37.77 billion.
New firms which are successful
There are various law firms that specialize in these developing fields of law and are earning revenue by showcasing their skills and credibility to prospective clients.
The firm has been specialized to serve the needs of investors and startups. The firm focuses on delivering the best in class service with the aid of technology for improved efficiency and effectiveness.
Sports Law is also one of the emerging areas of law and this firm provides services of law with specialization in sports law.
Economics Law Practice
This firm has been recognized as one of the leading Litigation, Arbitration, and Dispute Resolution firms in the country.
Advantages of working in law firms
The advantages of working in a law firm are as follows:
If a lawyer starts his solo practice or sets up his own law firm, it takes a lot of time, money and investment to grow. On the other hand, if a lawyer commands appropriate skill sets he can work at a law firm and earn a decent amount of money during the starting phase of his career.
Vast exposure in terms of clientele
A lawyer practicing solo will at least take 2.3 years to establish his name and credibility in the market. While at a law firm, already diverse clientele exists and there is no dearth of work. So, a lawyer does not need to worry about a lack of work while working at a law firm.
Working with experts
A solo practitioner is the boss of his own, he has to manage all the things which include improving and updating himself with the different areas of law and affairs surrounding it. While at a law firm, a lawyer gets to interact with various experts of the legal fraternity and even work with them. This opportunity provides enormous value to a lawyer and helps him to build his network even further.
In a solo practice, every day is a new day whereby a lawyer searches for work to earn money. While on the other hand, there is no dearth of work at a law firm. The lawyer needs to keep working and the money keeps coming every month.
Interest driven choice
Working in a law firm is thrilling and adventures. It is the interest and passion of an individual law to choose to work in a law firm. When the choice is interest-driven, a person cannot be unsatisfied with his work and he is expected to grow immensely by the tremendous opportunities provided by firms to increase one’s potential.
Therefore, in this way a law firm makes money and by specializing in these developing areas of law, a law firm can grow further. It is important to diversify the practice areas and increase portfolios to earn more revenue. But, at the same time, the quality of service should not be compromised at any cost.
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