There’s a basic number that far too many attorneys either don’t know or don’t pay enough attention to: it’s their Maximum Expected Annual Revenue (MEAR).
Put simply, your MEAR is the full dollar amount of your billable hours target times your published rate/s clients agree to pay when they hire you (e.g., 900 hours @ $475/hr = $427,500, plus 400 hours @ $300 = $120,000 for total MER of $547,500.) That is, you could count on collecting $547,500:
- IF you hit your hours target,
- and IF you billed all your hours without write downs,
- and IF your clients paid them in full.
These three IFs are the main factors that cause a gap between your MEAR and what you wind up bringing in at the end of the year.
The first factor – hitting your hours target – is mainly an issue of productivity and time management. The third factor – collecting your fee once it’s been billed – is mainly an issue of client service and communication; (I’ve written plenty on these topics elsewhere in this SuccessTips blog).
It’s the second factor – the write downs – where a lot of “leakage” happens. This is often the most pernicious and psychologically frustrating dimension of the profitability equation.
So why do you wind up writing down bills (and thus not achieve your MEAR)? The most common reasons include:
- Setting unrealistically low – or vague – cost expectations in order to land the work
- Underestimation of time and resources required to get the job done effectively
- Scope creep that is not explicitly requested/agreed to be paid for by the client
- Tardiness of work
- Lax supervision of other timekeepers delegated work (e.g., shuffling of personnel that cause redundant learning curves)
- Delayed or unclear communication with the client at the first sign of possible fee trouble; (the longer you wait to address the issue the harder it becomes, so you write down instead of speak up)
As corporations and individuals alike become increasingly fee sensitive (while simultaneously wanting more personalized attention), the pressure on you to write down bills increases. The solution to this dilemma is not rocket science: it’s rigorous case selection and scoping, it’s providing realistic cost and time estimates, and it’s communicating proactively.
To get closer to your Maximum Expected Annual Revenue, first calculate what it should be. Then, determine or estimate what your write downs have been year to date. Next, realistically examine why those write downs happened. Finally, resolve to apply what you’ve learned to ALL new matters coming in for the rest of year. You’ll bring in more revenue this year, and you’ll be in a much better place to start the coming year being on track to actually achieve your MEAR.