Are you Cube Reporting?
3 August, 2015

For those of you following industry trends, you will know that chargeable hours are on track for extinction…

The terms ‘NewLaw’ and ‘Value Pricing’ often translate to a fear of the future (or should I say the here and now?!) for many practitioners.

But why is that so? Besides the normal reactions to change many firms simply do not have sufficient management information to help them to migrate to a brave new world.

How do you model potential new business models or work out your cost of production to monitor your profit margin for new pricing arrangements if the financial information that you have at your disposal focuses on chargeable hours and charge out rates?

It is also surprising the number of firms who continue to judge performance based on revenue measures when it is actually the net profit of a firm that is distributed to the equity owners.

Revenue contribution does not necessarily correlate to net profit contribution.  A high fee earner can have a very high cost base and make a loss for a firm.  Conversely, an average fee earner can be very efficient and make a significant net profit for a firm.  Chances are most firms would remunerate the high fee earner more handsomely then the average fee earner but if the overall aim of the business is to make money for its owners, is this an appropriate remuneration strategy?

So what is ‘Cube Reporting’ and how can it provide strategic information for your business?

Cube Reporting or ‘Profitability Reporting’ involves slicing and dicing financial information to report at different levels of your legal practice.  Instead of only knowing how much net profit your practice makes overall, you gain invaluable strategic profit information about all the layers of your business.

Specifically, you should know:

  • How each of your individual fee earners contribute to your overall net profit (not just your revenue line);
  • How each of your teams and departments contribute to your overall net profit (not just your revenue line);
  • How each matter contributes to your overall net profit (not just your revenue line);
  • How each product and in turn each specialisation contributes to your overall net profit (not just your revenue line);
  • How much each client or client group contributes to your overall net profit (not just your revenue line); and
  • How each location or office contributes to your overall net profit (not just your revenue line).

When you have this information, you can accurately make informed and detailed strategic decisions about areas of law, the legal products that you offer and how they are offered, your operating locations, your staff and your pricing of services.

The best news is that the information is already waiting, latently, in your practice management system.

If you firm has not implemented Cube Reporting and you would like some help, please contact us.  Marg Fitzsimons has been a pioneer of this type of reporting for over 20 years.