Is benchmarking the master or the servant?

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Published on 1/1/07

The idea of benchmarking -- setting up statistical guidelines to identify best management practices -- has long been used in industry, and it can apply as well to law and other professional service firms.

For the typical small or mid-sized law firm, the most important benchmark measures your progress toward achieving your goals and strategies.

The performance standards that other organizations aspire to can give us a target. But they are of little help if we do not use them in accord with our firm's culture, the capabilities of our personnel and the aspirations we have.

Recently, I received a call from a lawyer wanting to know what percentage of his gross revenue should be allocated to rent, perhaps the second or third biggest cost item for lawyers. He said he wanted to know whether his percentage was in line with other law firms. My response didn't satisfy him; he went to another consultant and was told the average was 12 percent.

The question I put to the caller was: Why does it matter what others pay for rent? I realize that you cannot be too far out of line with your competitors and still stay in business. This, however, relates to the whole of your business/practice, not to any single item. The real issues and questions are far more complex than a simple answer to this one question.

Is your rent competitive for the geographic area in which you are located? Would you like to improve the quality of your professional life by moving to other, better-appointed quarters, and can you "afford" it? Would your current and prospective clients think more of you if you had better quarters -- and thereby allow you to take on better cases with higher fees?

If the answers to these questions mean that you pay 13 percent, then so be it. But, you've asked the proper questions and made conscious choices consistent with your firm culture and goals.

Consider another example. Some very able law-firm business consultants recommend that law firms regularly eliminate a set percentage (typically 5 to 10 percent) of those clients deemed too small to be worth the firm's time and overhead. But doing so on a purely formulaic basis can deprive a firm of needed business and alienate other, similar clients who don't want to suffer the same fate.

Such advice reminds me of when I was in the food industry and the process of making store-buying decisions first became based on computer runs rather than walking the stores and seeing what customers actually purchased.

Some decisions based on the computers were appropriate; some were not. The damage, however, couldn't be known because the buyers did not interact with the customers. Ultimately, the only winners were the powerful, large-volume vendors -- who today literally get to purchase shelf space.

There is no question that statistical information can be helpful, but it should not be controlling. For the typical small or mid-sized law firm, the only thing that matters, in my opinion, is what your goals and strategies are -- not what someone else's may be.

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