Redwood Analytics Shows Client Profitability at a Glance
Struggling with reams of reports from the finance department, partners in law firms have difficulty making smart business development decisions. Too much information is little better than no information. Redwood Analytics of Mt. Laurel, NJ, now offers a executive dashboard that displays key data like:
- The direct margin (profit) for an individual client
- The progression of client cross-sell
- Patterns in a partner’s book of business
- The relationship between client age and client life cycle
"Lawyers are not trained to be business people, and firms have a hard time determining profitability. So the key is to present them information at a glance, so they can easily see the elements that hurt or improve profitability," said Brian Glauser, Business Development Manager for Redwood. "Once they become familiar with the data, they’ll start to think more like business people."
Redwood is owned by LexisNexis, the parent company of Lawyers.com, where I work. Redwood started in 1999 with 10 employees, and today has 100 employees supporting law firms across the globe.
The "billing partner view" displays hours worked, the dollar value of the hours at the standard rate, the billed amount and the collected amount in one screen, with colored pie charts showing the account balance by date. Importantly, it calculates the billing realization and the direct margin for an individual client.
"You can also see the number of days a client is past the expected payment date, and compare it to the number of days the client pays historically," Glauser said. "You can notify the billing lawyer to find out what's going on. They can inquire: Are they happy? Did they get the bill? It changes from a collection call to a customer service call," he said.
The display can be customized to show a summary by lawyer, by office and firm-wide.
The dashboard displays profit drivers individually -- standard rate, hours worked, percent of fee discount, percent of hours billed and collected, percent of writeoff -- and calculates the direct margin. This is useful because a law firm's largest clients, as measured by revenue, are often its least profitable.
By knowing which clients are most profitable, partners can tailor their business development efforts to seek out similar clients. By seeing what percent of a firm's services a client is using, partners can identify hot prospects for cross-selling. "This gives lawyers way more information that they may currently be seeing," Glauser said.
No client is going to think a call that includes, "Are you happy? Did you get the bill?" When you have an outstanding invoice, and you call a client, they know *exactly* why you are calling. Call it "customer service" all you want, they know it's a collection call.
Maybe, if a law firms doesn't treat their clients like idiots or walking ATMs, they wouldn't need software to reduce them to a profit/loss statement.