Protecting Margin: Strategies to Help Both Firms and Clients

Current circumstances around the globe have created widespread challenges for finance and practice management leaders.

• Market shrinkage: Intapp research anticipates that total legal sector revenue will shrink 11% within advanced economies. Demand uncertainty for legal services requires firms to continuously monitor their cash position and adapt to changing scenarios.
• Margin pressures: CFOs are playing an even larger role in influencing pricing, LPM, fee concession demands and monitoring client creditworthiness and practice performance in order to protect margins.
• Ineffective remote working: Processes and people complicate an already-difficult situation; sharing information and insights among remote team members working with disconnected tools is the perfect storm.

Protecting Margin Requires Client Collaboration

Defending matter profitability — and, consequently, a large percentage of EBITDA margin — requires finance and practice management teams to think collaboratively. This means defining win-win strategies that support both the firm’s financial position as well as those of its clients.

Within this context, the strategies explored in our margin protection model represent initiatives across the client matter lifecycle. The model also compares strategies that provide benefit to both your firm and the client alongside strategies that benefit only one party.

Firms must maintain a holistic approach to margin protection that incorporates a short and long view.

• In the short term, firms must reduce exposure to financial management risks; e.g., illiquidity. In relation to overhead expenditure, many firms have already launched initiatives to more carefully manage exposure.
• In the long term, firms must manage financials in a sustainable manner that buoys or enhances client relationships. Past experience suggests existing client relationships will likely be the source of a significant amount of revenue in a crisis.

 Application of these strategies depends on existing and desired relationships with each client. It also goes without saying that although margin protection is important, heavily underutilized practices have a fixed cost base, so any incremental work would be profit-additive (regardless of margin dilution).

Positioning Your Firm for Post-Pandemic Success

As the custodians of financial data, finance and practice management leaders sit in the driver’s seat when it comes to surfacing decision-making data to enable win-win strategies. We’ve already seen the first Top 75 U.K. law firm succumb to administration as a result of COVID-19 business impacts, and we know that the ways that finance and practice management leaders act now will provide a springboard for their evolved roles in the future.

In the longer term, the role of finance and practice management leadership will evolve to focus not just on financial control and risk but on higher-value activities like practice planning, value-boosting client engagement, and firm profitability initiatives. Intapp Strategic Consulting can help you navigate the assessment and design of your function’s capabilities and fit-for-purpose operating model.

The Intapp Demand Impact Model provides our perspective on practice planning in the current environment.

For more information about how Intapp Strategic Consulting helps CFOs and practice leaders at pre-eminent firms, please visit: https://www.intapp.com/consulting-services/