The end goal of any business is to become profitable. Startup law firms are no different.
This guide will discuss the mechanics surrounding generating revenue as a startup law firm and the realities you should expect.
Should Startups Expect Profit Within the First Year?
A startup law firm is just like any other new business. It takes time and patience to build your reputation and revenue.
Many factors determine how much revenue your law firm can make. The number of clients, billable hours, location and your firm's specialised sector all affect your flow of income.
But remember, all firms are different. Some firms may turn a profit within the first year, while others won't.
You should be patient during the early months. Focus on setting up the frameworks and structures that will help your business grow.
If you don’t turn a profit within your first year, there’s no need to give up. It doesn't mean you won't be profitable in the long run.
On Loss Leaders
Loss leaders are less widespread among law firms today, though some firms still use this practice.
Loss leaders are firms that take on high volume, low margin work that serves as bait to lure in clients in the hope that they bring better business later. This model needs a lot of precision to execute well, as it could leave you overworked and without the high-margin business you’re relying on.
Due to its time-consuming nature, it’s often a better model for firms with multiple partners and lawyers.
How Does mattero Increase Output?
mattero is a tool built to help modern-day law firms streamline processes and manage their activities. With mattero, you can organise your firm's workload, send invoices, cloud share documents, and log billable hours.
mattero handles your business so that you can focus on bringing in new clients and increasing your revenue.
If you’re unsure about integratingmattero with your budding law firm, mattero offers a 14-day free trial. Try it and see how it can make your firm more streamlined and efficient.
What to Expect
So, how much profit should you expect? In truth, you can’t 'expect' anything.
Some law firms turn a profit in their first year, while others don’t. The factors are sometimes beyond your control. The most important thing to do is focus on what you can control—like bringing in new clients and charging appropriately for your services.
Also, don't focus too much on revenue. Instead, focus on the value you offer to your clients and the strategy you have in place to acquire them. When clients feel your services are highly valuable, revenue tends to follow soon after. With this model, you’ll be on the path to profitability.
What Are the Key Metrics for Profit in a Startup Law Firm?
There are many factors that affect startup profit. Here are some of the main areas to keep in mind:
Marketing Metrics: Look at how much you’re spending on all your marketing activities, then consider how many leads and clients you’ve got as a result. This will help inform you of the cost per client acquisition. This cost should be lower than the revenue generated from each client.
Case Lifecycles: It’s worth tracking how much time and resources are needed to progress a case through each stage (e.g. assessment, pre-trial, appeal, etc.). If you’re spending less than you’re charging, then this is a good sign.
Collection rate: Calculate the number of billable hours that you’ve invoiced in terms of the hours worked. This will tell you how much of your time is directly generating revenue.
Referrals: Word of mouth remains one of the most valuable ways to acquire clients. But it’s important to consider what you’re doing to facilitate referrals and how much revenue they’re bringing in.
Overheads: Rent, energy bills, wages and expenses add up. Make sure you’re keeping a keen eye on these costs and ensure they stay manageable for the revenue coming in.
I’m Ready to Start a Law Firm. What Do I Need to Do?
Different criteria are required to open a law firm, depending on the region. In Australia, some of the requirements you’ll need to meet include:
Apply to the Legal Services Board and Commissioner (LSBC) for registration of a new firm.
Obtain a practising certificate for legal practitioners.
Attend a mandatory LIV Trust Account seminar if you intend to have a trust account.
Open a trust bank account, notify the VLSBC and appoint an external auditor, unless the practice will not have a trust account.
Obtain client authorities for a new trust bank account if merging or changing business structure, and trust accounts are involved.
Take out professional indemnity insurance.
Establish a procedure for annual LSBC statutory deposit adjustments
Once you’ve done these things, you can officially begin practising as a law firm.
Starting a business is fun and exciting but can also be pretty challenging. Ensure that you use all the tools at your disposal to give your startup law firm an edge over others.
With mattero, you can give your firm a leg up from the first day. Visit our website today and start your free trial. You’ve got this.