Community Table: The ROI of hiring. Landing Potential Clients. And Incentives.

Episode Notes

Transcript

Announcer:

This is Unbillable hours community table with Clio, a monthly virtual round table where lawyers discuss issues their practices are facing and receive feedback from lawyer and law firm management consultant, Christopher, T, Anderson. Join the conversation live every third Thursday at 3:00 PM Eastern. Our first question is from an attorney who wants to know what is an appropriate ROI for a new paralegal?

Christopher T. Anderson:

That’s a great question about ROI with hiring someone because people think that paralegals or lawyers cost them money, but you shouldn’t be hiring one unless they’re going to make you money. So do you have any guidance on expectations of ROI from a senior paralegal?

Joshua Lenon:

Unfortunately, I don’t have all the numbers that would make that equation possible because we see the billing data, but not the salary and insurance and benefits cost. So I can’t give you all of that information, but what I can tell you is we are starting to see an uptick in what hourly rates are being billed for paralegals. And right now the US nationwide average for paralegals is around $178 per hour. Yeah, I know, but

Listener #1:

No, that’s low

Joshua Lenon:

A lot. It had been a lot for years of around 150. So this isn’t a big increase, but it is an increase. And unfortunately it’s probably not enough in terms of the average because we see it actually pulls a blended firm average below the rate of inflation because it hasn’t been raising fast enough. So I can’t tell you what the ROI of a paralegal should be. I can tell you a benchmark for helping calculate it and that how many hours can I bill out at at least $178 and will that cover then all the expenses of their salary and benefits? What’s left over from that? And that will help you with your ROI. We do know that a lot of law firms are looking for a profit margin between 20 to 40% depending on how lean you run. That’s 40% is really lean. So that can also be another target benchmark, right? Am I getting 20% profit from this person once I do all of my ROI calculations? And if so, then it’s probably sustainable and a good choice, but I can’t do all the math because I don’t have all of your numbers for it.

Christopher T. Anderson:

And Rob is my go-to for ROI questions when he breaks down. Our firm is really helping a firm with financial issues and financial matters. Rob likes to attack ROI from at least three angles, and so I’m going to let him talk to that. Just so we also focus you Rob, she’s hiring a new senior level paralegal, and as she’s doing her comp package and budget, she wanted to figure out how to model what ROI she should be expecting from that person as compared to her other team,

Listener #1:

Or if what I’ve drafted gives me what I was aiming for.

Rob Leitner:

Sure. If we’re talking about a senior paralegal, I would first start by analyzing your current paralegals. I would take, for each individual, I would take all of their compensation, including bonuses, and for sake of keeping it simple, I’d multiply it by 1.2 20% for operating expense markup. Theoretically, going forward, when you have a more sophisticated model, you want to calculate what that operating expense markup is because 20% may be a little high or low. So take that, multiply it by 1.2 and you’ll get their more or less all in comp. And then what you want to do is run a report and see what type of billable revenue is attached to them through your case management system. You divide the revenue by the comp, and you’ll come up with a number probably from say two to five, do that for each individual member of the paralegal team.

And then you could also average the ROI for the paralegal. So let’s, for argument’s sake, let’s say it’s 3.0. Well, what does that mean? If you’re trying to develop a comp package, what it means is whatever compensation you think the senior paralegal will earn, including bonuses and be conservative, multiply it by 3.0 and that’s the amount of revenue you can expect from that billable resource. And then over time, hopefully by quarter, you should be calculating the ROI for your attorneys, for your paralegals individually and as a group. And you should see what the trend is. Is it going up or is it going down? But that’s a good rule of thumb for budgeting and expectations on revenue. Conversely, if you take your revenue goal over a period of time, let’s just say 2025, and you use that type of calculation with all of your billable resources, it’s a sanity check. Does your revenue make sense from an ROI perspective based on historical numbers? In other words, will your billable team produce that expected revenue? Is it realistic?

Christopher T. Anderson:

Yeah. And then what I was talking about is the three channels that Rob’s talked about is we would look at it as full team, look at it by, and there’s probably four or five, you could probably look at it by practice area, certainly look at it by title. So paralegal, attorney, and then by individual. What you’ll also find is then if you’re doing that work, you’ll find your leaders and your laggers. Then as you look to improve your team, you’ll know where to focus. And so it provides a lot of insight that most people on the small business and small law firms don’t do. And I don’t know if you’ve ever seen the movie Moneyball, but they make decisions about people based on more subjective things. Do the clients like them? Not what’s their NPS score, but do the clients like them? Are they nice?

They’re good to work with and not looking so much at what’s their ROI that things are going to drive the business, drive your ability to have extra dollars for marketing and for hiring better team? Because cool thing is as you make those changes and you drop the lower ROI people and you keep the higher ROI people, that R enables you to start to increase your comp so that you’re attracting better and better team leaving the at rest for the other firms and becoming known as a leader in pay because that’s all they care about. When the truth is you’re a leader in return and you’re able to have a higher quality of team and be more profitable, the magic, right? You actually get to pay market leading salaries and have a higher return on every dollar you’re paying. It is a virtuous cycle. But I think we haven’t answered your question, and Rob, one of the things that Rob will tell you, and I’m going to let Rob tell you is it’s not so much because you’re looking for that benchmark because everybody wants to know what’s other people, what’s everybody else getting for return, because that’s really what your question is.

It’s really like I want to compare myself to them and I want to be sure I’m in range. So we’ll give you the range, but what Rob will tell you is it’s not about what they are getting but where you’re headed. Rob, can you talk a little bit about trend versus absolute numbers?

Rob Leitner:

Yeah, exactly. So you’ll have your data and you’ll have your ROIs for your attorney team, your paralegal team, and the individuals, and you’ll start tracking it by quarter. It’s the trend that’s important. So maybe it’s a 3.0, maybe it’s a 4.2. What I would recommend is literally put it into Excel and put on a trend line and just see if the trend is positive or not. If it’s positive, it would stand to reason that your profit for the firm is probably getting a little bit better as well. These things kind of go hand in hand. And I would also mention, besides keeping an eye on the trend more than the number, the trend is more important. I would definitely calculate what I CallRail the billable resources, ROI, which is all of your attorneys, paralegals, legal assistants, anyone that bills and do the same analysis, add up all their comp, add up all their bonuses, multiply by 1.2 approximately, and then divide the total income for a period by that compensation.

That will give you a number for your billable resources. Again, it’s not the number, it’s the trend you want to follow over time, and you can use that number as a sanity check on your budgetary numbers. Final thought. You can also calculate the firm wide ROI, which means as a unit, everyone, what are your total personnel expenses? Divide the total income by the total personnel expenses. You’ll come up with the number. It’s going to be low, probably 1.8 to 2.2, something like that. Again, number doesn’t matter. See where it’s going over time in the current environment with inflation and most importantly, wage inflation, right? We’re all paying everyone more and bonuses are higher and signing bonuses. It’s not easy to become more efficient. In the olden days, meaning pre covid, if your personnel expenses, your payroll expenses, let’s say were over 50% of your total expenses, it was a red flag, but because of wage inflation, most firms that I work with easily could have 58% or 62%, meaning 58 cents or 62 cents of every dollar the firm spends would be on payroll or some type of personnel expense. So that’s why it’s more important than ever to keep an eye on this trend.

Listener #1:

Got it. Thank you.

Christopher T. Anderson:

So now to your specific person, it would be malpractice to say you should be shooting for 3.45 as your ROI, but what you can do is you probably have a sense for who you think in your firm is delivering you a good ROI today. Let’s calculate that person. Let’s do the math for that person and then apply it to the new hire. And you could maybe say, well, this new hire, I really think she’s a rockstar, so I’m going to want an increment more 0.1 more 0.2 more. And I want the trend to be up and then back into it because the answer with ROI for a new hire is you get to choose. You get to choose their billable rate, you get to choose what you pay, and then you get to choose how much work you give. So you really can decide ahead of time what their ROI is going to be by managing those three numbers.

But if you manage them to a level that doesn’t match the rest of your team in some, it isn’t, let’s say guided, it doesn’t have to be precisely can. Like I said earlier, you could use this as a level up opportunity to start ratcheting up what your expectations are. But if you come out and you say, well, my best person’s 2.8 and you bring this person in, I’m going to get 3.5 out of ’em. They’re not going to match. Your whole factory’s not dialed into 3.5 yet. And so there’s going to be problems. It’d be like plugging in you. You have a lake house, so you have a twin outboard on the lake, and you’ve got 150 on the left and you put in a 300 on the right. That boat’s going in circles, and so it’s not going to be smart. But if you have a one 50 on the left and you put in a 1 75 on the right and you can adjust the throttles a little bit, you can still go straight and then soon you’ll put a 1 75 on the left. Now you get to go faster. I won’t torture this analogy any further, but the point being is use the data from where you are, feel free to ratchet it up a little bit and then make the decisions on comp and hourly rate to match. Make sense?

Listener #1:

Yes, totally makes sense.

Announcer:

The next segment is a portion of a discussion on cleo’s secret shopper program between Christopher and Joshua Lennon recorded at CLE Ocon in October. The rest of this conversation can be heard on legal talk networks on the road series.

Laurence Colleti:

Try to imagine we’re going back in time five years, so the year is 2019, and Joshua, you guys just cle, Ocon hot tub, maybe Alcon hot tub. So you guys just, it was a secret shopper program where you called up a bunch of law firms and were gauging their responses. And so you did that study and it revealed some pretty shocking results. You all tend to do, kind of surprised many members of the legal profession. Now you decided to do it again. Fast forward to 2024, you guys did it again. And so what were some of the results? I think people will be surprised once more.

Joshua Lenon:

Yeah, our secret shopper program is something we’ve been planning to revisit for a long time because it’s one of the most, I think, core activities that lawyers need to be doing, and that’s bringing on new clients. You’re always going to have a need for that next client. And shockingly, we found that law firms have always been bad at this. There’s a stereotype that exists unfortunately for a reason. So in our 2019 study, we emailed a thousand law firms, we called 500. These are very targeted outreach from a prospective client, and the numbers were just abysmal. 60% of law firms didn’t even answer an email,

Christopher T. Anderson:

Right? That’s astounding.

Joshua Lenon:

Only two out of the thousand hit our excellent criteria, which was like five things. Only 22 of the 500 law firms that we called hit our excellent criteria. We thought it has to be better. Now, five years later, there’s been the pandemic massive adoption of virtual communication technologies.

Christopher T. Anderson:

You told us five years ago,

Joshua Lenon:

Yeah, surely this would be better. And every metric, every one that we looked at, lawyers performed worse in 2024 than they did in 2019. So we reached out to 500 law firms via email, and we broke that down by phones that were answered, phones that went to voicemail chatbots, and if they had an intake form on their websites, we tried multiple channels with 500 law firms. And what we found is if a lawyer answered the phone, most of the time it was rated as decent customer service. The prospective clients were able to get some of the information they wanted. Not all but, but every other one of those channels performed poorly. The channel that came in second place was chatbot, which actually surprised me

Christopher T. Anderson:

Because they should answer all the time.

Joshua Lenon:

They should answer all the time. The real question that we were finding is they didn’t necessarily answer what they were being asked,

Christopher T. Anderson:

Right?

Joshua Lenon:

And so when a prospective client was asking about, Hey, how do you calculate your billing? Is it hourly? What’s your hourly rate? Chatbots weren’t prepared to answer that, and how can I pay was another one? And chatbots weren’t prepared to answer that. And importantly, when chatbots were asked, what’s the next step in hiring this law firm,

There was a big gap there as well. And that’s the one thing you want your chatbot to at least be able to do. In spite of that, when we surveyed consumers of legal services in a separate survey, 51% said chatbot’s actually a good starting point, but 61% said, I really want the chatbot experience to be leading me to talking to a lawyer. I’ll chat with the bot, but only if it lets me talk to a lawyer. And so I think even though it came in second place, I’m finding chatbots have a lot of potential for law firms in being responsive, being informative, and helping turn window shoppers into potential clients.

Laurence Colleti:

Which quick follow up on that. I think one of the things that jumped out at me was that there’s a generational difference in preference there. And so I feel like the younger the generation, the more receptive they are to that chatbot experience. So what were some of the findings there?

Joshua Lenon:

Well, we looked at generation differences across a whole variety of metrics. And so honestly, for the chatbots, it was overall fairly positive. When we asked about the use of AI and the law firm in particular, the numbers got really striking. What we found was the lowest group that wanted a law firm to be using AI was baby boomers.

Christopher T. Anderson:

69%

Joshua Lenon:

Of them actually said, you know what? We’re actually wanting a law firm that uses AI or we don’t mind that they use ai. And that was the smallest. As you went into younger generations, the approval of the use of AI only got higher. So when you’re looking at artificial communication technologies like chatbots, or if you’re looking at using generative AI as a part of your internal workflow, I don’t think there’s any reason to hide it anymore. Clients are actually really open to it. They’re either actively seeking it out. 42% of clients overall want a law firm to use AI or they don’t mind. And when you combine those groups together, that’s 70% of the clients we interviewed.

Christopher T. Anderson:

And it would seem, yeah, that when the problems are, I don’t answer the phone or I don’t respond to emails, but I’m okay with ai. Like Hello solution, right? It’s like you just have to adopt that. And what astounds me is we’re sitting here at Khan, we’re on the exhibit floor, and I’m looking around and I’m seeing lines of people at marketing booth, and you just want to run up and choke ’em, be like, did you answer your damn phone? Because you want to throw more intake, you want to throw more leads at your problem,

Joshua Lenon:

But

Christopher T. Anderson:

You’re not solving the real easy one that’s out here.

Joshua Lenon:

So we did a workshop yesterday based on the legal trends report, and one of the exercises I challenged the audience to do was just write a response email to your ideal client. I added an extra twist to it. I was like, who here has chat GPT on their phone? Several people raised their hands, and I’m like, okay, this is your prompt. And I had her up on the screen. I want an email response to my ideal client that does these five things go 30 seconds later, one lawyer is like, I’ve got my email.

Christopher T. Anderson:

Amazing.

Joshua Lenon:

And I would actually send this back to a client. And so that’s how you can just leverage these tools to be the type of lawyer clients are searching for. Yeah,

Christopher T. Anderson:

And that’s really remarkable. One of the things, it kind of touches on what Lawrence asked about a second ago, but I just want to drill on this one. The legal trends report so that only 2% of law firms in 2024 referenced similar legal situations or case law that shoppers were looking for, and that number was 27% in 2019.

Joshua Lenon:

That was shocking.

Christopher T. Anderson:

So what the hell happened there? I mean, that’s

Joshua Lenon:

Amazing. As we talked about, these were highly targeted shops, and so we sent family law base scripts to those who were going to speaking to family law lawyers, criminal defense scripts, to those talking to criminal defense lawyers. And so one of the questions they asked is, can you help me? And the real expected answer was, of course, yeah, I’m a criminal defense lawyer. I handle this type of work all the time. And nobody said that.

Christopher T. Anderson:

Wow.

Joshua Lenon:

Yeah. They just assumed their expertise was self-evident.

And what we’re finding is when those same secret shoppers went to their website, when they looked at the email response that they got back, that was never openly stated. And it just seems like a really big miss from a lawyer to reassure a prospective client that you are the right fit. A lawyer that does do that, they’re going to get attention. And a lawyer that doesn’t is going to be like, I don’t know if this is the right lawyer for me. It’s like going to a car dealership and asking, do you sell cars? And they’re like, we got wheels, but do you have cars?

Christopher T. Anderson:

We got some tires back.

Laurence Colleti:

Well, building on that last point, now we’re talking about business that’s currently at your website. It’s at your front door and they’re knocking. They’re saying, Hey, can you help me? And you don’t answer. So they’re getting not a great experience. That translates into future possible clients as well, because people talk about the experience they had. So you had some findings on that as well. So of

Joshua Lenon:

Our secret shoppers, 73% said they would not recommend the law firm. They reached out to

Christopher T. Anderson:

73%,

Joshua Lenon:

73%.

Christopher T. Anderson:

So basically we took 73% of the people at our front door and sent them packing in a bad way

Joshua Lenon:

With a negative experience, right? And then when we asked law firms what really marketing is like, are you using, the biggest response was referrals and word of mouth.

How can you be sending away 73% of the people who just knock on your door and then expect word of mouth to carry your business? It was incredibly shocking. And so we looked at some Clio data because that’s one of the strengths of the legal trends report. And we looked at our client intake tool, Clio Grow, and what we found is that law firms that are investing in a client onboarding experience actually had 51% more leads and 52% more revenue than we were comparing to firms that aren’t using Clio grow, but using other Clio tools and the big features that made a difference in that, were using online search ads. We actually integrate with Google’s local search ads. Those have been performing incredibly well according to our data online scheduler, just the ability to book an appointment just like you would with getting a haircut, right? Lawyers can’t seem to figure this out. And the last one was an online intake form, and just using those three simple things was a 50% boost in leads and revenue.

Christopher T. Anderson:

And what I note there is one of those was getting visible. The other two are about removing friction in the damn process, just making sure that people are at your door, that they could open the door and that they can walk in without falling down a hole. It’s just really basic

Joshua Lenon:

Stuff. It’s not having a beware of dog sign on the front door to your business.

Announcer:

Our last question comes from an attorney who wants to know how to set up a bonus or incentive comp for their billing specialist.

Listener #1:

I have a billing person and he’s due for an annual review. We’re going to increase his base pay. He’s very, very good at what he does. Very, very good. But I want to know how to maybe do some incentives. Obviously it can’t be on collected dollars, yada yada, but our collection rate has been consistently probably about 99.7%. So I want to know just ideas on how to do a bonus or incentive comp.

Christopher T. Anderson:

Well, it’s going to be hard to move the needle from 99.7%.

Listener #1:

Yeah, I know.

Christopher T. Anderson:

And is that because you are just really, really good about having the money in trust already?

Listener #1:

And if we have checks and balances and whole operation going, and should someone escape us between, he gets on the phone, I make the attorney get on the phone with him, and they start demanding money right then and there, and usually the client pays at least to get him to break. But it happens few and far between.

Christopher T. Anderson:

So what are your pain points in billing

Listener #1:

Right now? It’s the auditing. It’s the auditing as

Christopher T. Anderson:

Explain to everybody what you mean by that.

Listener #1:

So I, I did the math. It is a losing, it is beyond a negative ROI and you all would fall off your chairs, but I spend hours upon hours, I’d say collectively 10 hours going through to audit to make sure the sequence makes sense and make sure the content is right, that the amount of time is adjusted correctly, is appropriate for what they’re saying that the event or the task that they did and making sure that they know charged where it was applicable. We have a list of no charges, and so I’m not charging a client for calling our office to ask to speak to their lawyer. So I just have to make sure that everyone remembers to no charge, even though it’s on the list, they’re punching it in the system as they go along. Well, presumably. So I spend a lot of my time at this juncture analyzing, critiquing, marking up these pre-bills of all of the clients of the cases the attorneys are handling. And it’s the bane of my existence, and it’s been the bane of my existence. The good news is that sometimes I find process problems within those pre-bills or I find inefficiencies when I’m reading the pre-bills. So I highlight that and then we have a conversation about it, or I just get to know what’s going on in the case. I’m like, wait a minute, substantively, maybe we should do X, Y, and Z. So there’s an upside, but the upside doesn’t outweigh the downside. So that’s auditing. Okay,

Christopher T. Anderson:

So that’s one of your pain points in billing. How could the billing clerk help with that?

Listener #1:

He could do it,

Christopher T. Anderson:

But you said, well, there are some upsides that you don’t want to lose. So how could he help with it in a way where you don’t lose the good parts?

Listener #1:

Well, he’s already making the changes. He makes the changes. He sits with the attorneys. If I have question marks, he’s part of the process, heavily part of the process. After I put my eyes on it, once I put my eyes on it, I send it out, I’m out other than see mes, which we collectively talk

Christopher T. Anderson:

About. Well, let’s take this individual out of it though. Anybody, if anybody in the world could help you with this process, what would they do to help you with this process? Other than the attorneys writing better bills?

Listener #1:

They would do the critiquing and the analyzing.

Christopher T. Anderson:

Okay, is this billing clerk have that able to do that?

Listener #1:

No.

Christopher T. Anderson:

Why?

Listener #1:

Well, I only say no because I tried it once and it wasn’t, I tried it once. He’s been doing this for a year. He knows what I’m looking for. He can verbally say what I’m looking for, but when he went to go, I had him do a batch of them and he missed everything. So I’m going to say no. Based on that test run,

Christopher T. Anderson:

Could this billing clerk supervise somebody who would have that skillset, who might be offshore, who might not be human to do the review,

Listener #1:

Supervise? Sure. But I don’t know what he would be supervising the bulk of the time I looked into ai, by the way, but,

Christopher T. Anderson:

But it could be supervising, sourcing, delivering the initial product too, making sure the reviewed product comes back in a certain amount of time and it’s put on your desk, reviewed by that amount of time, let’s say in two days that back on your desk in a reviewed status with notes as to what some things you might want to pay attention to. Let’s say a lawyer in India or Pakistan or another English speaking country with common law that would be able to do a substantive review and give you pointers and just take that process away from you and deliver to you a product that you can still look at real quick and glean the cool things. I do think it’s cool when you review bills, you see what’s going on, you learn what’s going on for as long as you wish to retain the role of supervising attorney in your firm, that that’s one way to keep abreast of what’s happening in those cases. Not my way, but it is a way.

Listener #1:

Yeah, I could try. I didn’t think of outsourcing for an attorney internationally. That may help, because they have presumably have the skillset to do the critical analysis.

Christopher T. Anderson:

So that’s just one thought. I mean, you’re looking for ways to bonus this person. That’s one way. If they can run that process, that would certainly remember, we try to bonus people for doing two things, making your life better in some way, saving AKA, saving you time or making you more money.

Listener #1:

And the other thing that I had put on his desk, he’s now doing the thing with my other associate where he’s taking the time.

And for all of his bitching and moaning, he finally admitted, he’s like, no, actually, I think it’s good. I was like, gosh, God. I had to convince him to just try it and let’s just see how it goes. I told him it’s a science experiment. So the other thing I could really use help with, we had to outsource some of our very, very, very old, old, old ar. Old, old to a law firm. And of course they take 30% off the top. So I asked him to update back in 2002 when I was working for my uncle, I made a booklet called Collections for Dummies because I didn’t know the process and my uncle put me on that task. So I made a whole booklet so I could keep all the processes straight. And I had found the booklet and I said, Hey, here’s a starting point. Why don’t you update this with whatever’s new? And then why don’t we see if we can take some of this over ourselves and go after these and docket judgments and things of that nature? And that sort of fell by the wayside. I can resurrect it, but that fell by the wayside.

Christopher T. Anderson:

Yeah, that would be another way. And then the last way that I can think of has nothing to do with billing at all, but this is a person who’s touching clients. Every single client that goes through the firm soliciting five star reviews and getting them,

Listener #1:

We had the incentive going.

Christopher T. Anderson:

Yeah,

Listener #1:

The only person that did the incentive was my dragon.

Christopher T. Anderson:

Was the billing clerk aware that the billing clerk would be eligible?

Listener #1:

Yes,

Christopher T. Anderson:

I might have that second conversation with them. Here’s how you might do that.

Listener #1:

That’s a good idea.

Christopher T. Anderson:

And again, it puts them back in the mindset of like, I’m giving you the ways to, you want to raise, go get one. I’m going to pay you a very generous amount for these reviews. They have to be real little pointer. Lately we’ve been finding clients who give lots of content in them. Google is hanging those reviews up for weeks at a time, sometimes, sometimes longer. It’s like a hundred words is good. More than that, it seems to be a problem, 30 to a hundred. But yeah, so those are ideas for how to give incentive to pay to the billing clerk. Okay,

Listener #1:

That’s good. Thank you.

Announcer:

Thank you for listening. This has been Unbillable Hours Community Table with Clio on the Legal Talk Network.

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