Many law firms operate without a clear understanding of their true financial performance. In a recent webinar, Gary Allen tackled this challenge head-on, guiding firms through how to use a simple but powerful financial “report card” to diagnose problems and unlock new opportunities for profitability. Using a fictional firm—Dalton and Finch—as an example, Gary illustrated common struggles that many firms face, from flat profits and partner burnout to high associate turnover.
Why Knowing Your Numbers Matters
Gary opened by highlighting the three pillars for any firm’s financial success:
- Efficient processes
- Productive people
- Aligned products and services
He drew from his experience as a practicing lawyer and legal tech developer to stress that law firm leaders must measure what matters most if they want to make better decisions and build sustainable profitability.
Understanding Capacity
A key concept covered was capacity—the dollar value of services a lawyer can realistically sell into the market. Gary explained how to calculate this by multiplying billable hours by the average billable rate. But capacity isn’t just about billing more hours. It’s about setting realistic limits on total working hours, carving out space for non-billable but necessary work, and defining billable goals that support both firm profitability and lawyer well-being. Increasing capacity can mean reducing non-billable time or raising rates—but it must be planned carefully to avoid burnout.
Tracking the Right Metrics
From there, Gary walked attendees through three core metrics every firm should monitor:
- Capacity: Are you setting realistic targets and protecting time for billable work?
- Utilization rate: How much of your team’s total capacity actually turns into billable work?
- Realization rate: Of what you bill, how much do you actually collect?
Polls during the webinar showed wide variation in these numbers. Many firms were surprised to learn that while the national average realization rate hovers around 82%, top-performing firms push that number closer to 95% or higher.
Managing Overhead Strategically
Another key topic was overhead. Gary advised that firms should look at overhead as a percentage of revenue—not just the raw dollar figure—because this provides better context for decision-making. While the industry average sits around 48%, best-in-class firms often run leaner, with overhead closer to 20–30%. The goal isn’t to slash costs recklessly but to stay disciplined and strategic, ensuring expenses support revenue generation rather than drain it.
Closing the Profitability Gap
To drive home the impact of these financial levers, Gary compared Dalton and Finch’s average metrics with those of a best-in-class firm. Over a 40-year career, the difference in profitability could mean millions more in earnings for partners and a stronger ability to retain top talent. He made it clear that firms that fail to monitor their report card risk losing their best people and falling behind competitors.
How to Start Improving
Gary wrapped up with practical advice on closing the gap:
- Tackle potential issues—like inefficient processes or unclear pricing—before they become crises.
- Build fair, motivating compensation systems that reward the right behaviors.
- Ensure you have the right mix of services and pricing models to match your clients’ needs.
He encouraged every attendee to look at their own firm’s performance honestly and to commit to small, targeted improvements that can drive real financial results.
Better Collections, Better Relationships
One final takeaway was the importance of robust collections practices. Gary reminded firms that achieving a high collection rate is directly tied to building strong client relationships and trust. He recommended using retainers where appropriate, leveraging automated trust accounting tools, and always setting clear expectations so the firm doesn’t become an unintentional bank for clients.
Final Thoughts
When firms know their numbers, they make better decisions, keep their teams happier, and deliver better service to clients. A strong financial report card isn’t just about profit—it’s about creating a healthier, more resilient firm for everyone involved.
Ready to improve your firm’s financial health? Start by understanding your numbers, sharing them with your partners, and taking small steps today that lead to big results tomorrow.
