Financial Benchmarking No Benchmark for Success

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Financial benchmarks are the new way to keep up with the Joneses. More attorneys are seeking to compare their law firm's performance with that of other firms. For large firms, there are a number of resources available to provide such information: surveys; reports from major banks such as Citibank, which provide loans to Am Law 100 firms and others; as well as numerous articles on "best practices" authored by consultants.

Such sources are misleading, however, and fail to respond adequately to the needs of every individual. While it is nice to know what the averages are within a certain category, it's a misstep to take particular numbers as the standard of success. You neither succeed nor fail based on a match of those numbers.

One acquaintance asked me what the occupancy cost percentage was, on average, among a certain category of law firms. The lawyer making the inquiry was faced with the decision to renew his lease or to seek space elsewhere at a lower cost.

I refused to respond with a specific number, expressing my opinion that such benchmarks are misleading and inadequate as a foundation for decisions. Sometime later, we spoke again. He indicated that he had discovered the percentage, and it was lower than the percentage in the survey; therefore, he renewed his lease.

In the interim, I spoke to the architect of another survey and inquired as to the occupancy percentage in his survey. That number, ironically, was lower.

Thus, the decision to renew the lease was based on erroneous data. More importantly, the lawyer failed to consider other important issues: convenience of the location to clients; image of the office and how it reflects the stature of the law firm/attorney; and amenities within the office that provide comfort to the lawyers who spend eight, 10 or more hours each day in that environment.

At some point, the lawyer who has been in practice for a considerable time and achieved a level of success deserves a certain degree of comfort that a higher occupancy cost might provide. Depending on your belief system and perceptions, the lowest cost of occupancy may not be the right issue to focus on.

Another example is realization rate. While one firm might have a very high rate and another firm a lower one, practice area may have a significant impact.

For instance, a corporate client with a steady stream of business may have a different realization rate than a lawyer in the family law arena. A personal injury lawyer, who is paid only upon success, is likely to have still another realization rate.

Review surveys and best practices with a grain of salt. Look at your own operation. Manage your law practice as economically as you can, given the circumstances of your practice area, your clientele, and your personal goals and comfort. If you can do that irrespective of the numbers, you'll not only make money, but you'll be operating as efficiently and effectively as possible.

As famed UCLA basketball coach John Wooden said, focus on yourself and everything else will take care of itself. Don't worry about the "others." You don't have to keep up with the Joneses to experience success.

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