Reaching Your Revenue Goals: Planning and Projections
Melissa’s tips for setting and reaching targets for your revenue goals.
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Description
If you have an overarching revenue goal for your law firm, you need data. But you can’t just look at last year’s numbers and decide to add 20% to the top. The truth is you have to set and reach subgoals that will make your ideal revenue inevitable, and this week, Melissa is diving into one key piece of your revenue stream: average revenue per case or matter type.
On this episode, Melissa is reverse engineering the concept of average revenue per case or matter type to help you in your planning and projection process. If you’re wondering what kind of cases or clients you should be bringing through the door, how many of them, and what to expect so you can increase your visibility and plan in a smart way that is based on real numbers, tune in.
Join Melissa this week as she shows you why knowing your average revenue per case or matter acts as a fulcrum in your business. You’ll discover how, without this data, you are at a disadvantage, and why, when you take the time to evaluate this on the front-end, you will be able to bring your firm’s data together in a way that allows you to plan in a strategic way.
If you’re a law firm owner, Mastery Group is the way for you to work with me. This program consists of quarterly strategic planning facilitated with guidance and community every step of the way, so click here to join us!
What You’ll Discover:
• Why knowing your average revenue per case or matter type is a fulcrum for your planning.
• How to calculate the percentage of practice areas/case/matter types that are contributing to your revenue stream.
• Melissa’s tips for setting and reaching targets for your revenue goals.
• How to determine how much revenue each case or matter type your firm deals with should bring in.
• Why having revenue data allows you to plan in a smart and strategic way for your firm.
Featured on the Show:
• Create space, mindset, and concrete plans for growth. Start here: Velocity Work Monday Map.
• Join Mastery Group
• #48: Accurately Calculate Average Revenue
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Transcript
I’m Melissa Shanahan, and this is The Law Firm Owner Podcast, Episode #173.
Welcome to The Law Firm Owner Podcast powered by Velocity Work for owners who want to grow a firm that gives them the life they want. Get crystal clear on where you're going. Take planning seriously and honor your plan like a pro. This is the work that creates Velocity.
Hey, everyone, welcome to this week's episode. So, three days ago, I facilitated the Mastery Group Strategic Planning Retreat. So, every quarter, I mean, that's what this group is centered around. That's what every single client that I have is centered around, quarterly planning. And so, this was my chance to facilitate a retreat for Mastery Group to plan for Q4. And, it was the best one we've had yet.
There are a few reasons for that. One, is we are constantly, and on purpose, learning from members as we go and getting feedback, and making sure that we implement the feedback. Sometimes it goes slower than I want it to, but you know what? Every single quarter, these retreats get better and better. So, we're on the right track there, from the back-end perspective.
And then, from the membership perspective, the members are high quality members, and I'm so proud of that. We have about 50 members, and about 75% were on live, just under that, like 73%, were on live for the retreat. The rest of them will, of course, watch the recording and be able to implement the information that way.
This retreat to me, again, one of the reasons it was one of the best, was because they all showed up. They were willing to be vulnerable. They were willing to ask questions that maybe some of them felt were silly, but they aren't. There aren’t any dumb questions that can be asked, when it comes to planning, and how to think about planning, and how to get to the right numbers, how to determine what the goals are, etc., etc.
Like, whatever the questions are, it doesn't matter. It's how can I help them get clarity. And they are willing to ask the questions, they are willing to express confusion, and us work through it together. And then, they feel solid after that. They are willing to celebrate their wins and be able to share the wins. They are willing to share the barriers that they've experienced. And they're willing to share the lessons that they've learned.
All of this makes for a very rich environment that breeds success for themselves. And yes, I facilitate it. And I know I'm a part of that, but it wouldn't happen without the way these law firm owners show up. So, I am just above and beyond grateful for the group that we have, and how high quality it is.
It's so interesting, as time goes on, I can tell, really one of my main responsibilities is to preserve the integrity of that group. And, to make sure that I'm drawing in people that are willing to get their hands dirty. And ask the questions that feel silly, and work through their confusion with me and with one another, to get to a place of clarity.
And if there isn't that willingness there, it makes it really tough to hold the space for the group that's there, that's really willing to dig in in those ways. So, I'm so grateful. We have Office Hours coming up for them this Tuesday. It's essentially an all-day session of office hours. They make appointments, they come and talk to me about their plans, one-on-one.
And though there's others that can be on the call, because this is a group so everyone can show up to Office Hours, but I have an appointment to speak with: Okay, let's dig in on this issue. Let's help provide clarity here. Hey, let me see the plans that you have. Oh, have you thought about this?
Like, I just helped them tighten up all the work that they've put into their quarterly planning. And then, I move to the next person while they get work done. Dig in with them one-on-one, and then move to the next person, and then let that person work. And then, I come back around; how you doing? Did you figure it out? And then, we can talk further and go a little deeper.
So, it's just a really cool time for this group, and for me, to get to work with them in a unique way. So, fun. Okay, so here's what I want to talk about today. This stems from… What the topic today… When I was facilitating, realizing that I needed to connect the dots a little bit differently for, especially some of the newer members. That they really understood what they were doing and what they were calculating.
When we set goals, we use data to set goals. And when I say use data, we don't just look at last year and use that data, and decide to add 20% to the top. You can do that for a goal, that's fine. But this episode is not about how to set a revenue goal, like the mother goal. I'm talking about how to use it to set goals that are sort of underneath that. That stack underneath that, sub-goals.
That if those goals are hit, then that means that revenue is inevitable. So, this is me reverse engineering, backwards, to help them get some really solid goals into place, that will inevitably lead to the revenue goal that they want to see. If you're familiar with the term “leading and lagging indicators”, you could think of it like this: Like, there's certain indicators, KPIs (Key Performance Indicators) that they're going to focus on, and if they do that, then the revenue is inevitable.
So, revenue would be a lagging indicator, and some of these things can be considered leading indicators. Really, that doesn't matter. I don't want you to think about or get stressed about having to learn leading and lagging indicators. The more I go along, the more I realize it's really not helpful for a small business owner.
I mean, it can be useful, I guess, to understand, but you're not really going to use it. You don't need to use it inside of your business, like a large organization would. It's super important there. If you have teams and teams of people, and they all need indicators, and top down you need to understand what's leading versus lagging. But we don't really need to do that here. Okay?
We just need to have a goal. And then, we can have some sub-goals that when reverse engineered, it's the inevitable things that are going to lead to the revenue goal. And then, we will have Rocks, which is the effort that we put forth in order to achieve the goals, especially the sub-goals. Because that's going to give us the revenue goal.
So, people get to a revenue goal, I'm not going to talk about in this episode, how to pick the destination on the map, I have talked about that before in this podcast. What feels important today, is to help people understand how to get to the sub-goals.
So, there are a few pieces of data that are required for really good planning. One of them, is average revenue per case or per matter. Now, if you don't have practice areas… Like, I have one client that just does estate plans, that is what she does.
She doesn't do probate; she just does estate plans. So, she doesn't really need to break down by matter type or case type. So, her whole firm, she just takes the firm revenue and divides it by the number of cases, because she's flat fee. So, that is her average revenue per case.
I have done podcasts on average revenue per case or per matter. And I highly recommend you go back to listen to those, if you want to. If you want to dig into that a little bit more, I have broken down flat fee versus contingency fee, versus hourly, and how to think about that. And if you can't get data to do that, what is the generic equation that you can use? And so, I have done an episode on that; we will link to it in the show notes.
But here, what I want to say, is that average revenue matters. If you know your average revenue per matter, and we'll talk about practice area breakdown in just a minute, that is a fulcrum for your planning. If you don't have it, your planning is more flat, and less stable, and less reliable, average revenue matters.
Now, if you do have practice areas, it is important to get your average revenue, to know your average revenue per case or per matter, in each practice area. And/or for each matter type that you care about. So, maybe you don't know it for… Which if you do, that's fantastic. But maybe you don't know it for every single matter type, but there are a couple that matter greatly.
I'm going to give you an example. We have someone in our group that's a criminal defense lawyer. And so, he breaks it down by matter types. His practice area’s criminal law, but he has felonies, he has DUIs, he has traffic tickets, etc., etc. So, he knows his average revenue for each one of those case types.
He knows what average revenue is for a felony case. He knows what an average revenue is for a DUI. He knows the average revenue for a traffic ticket, et cetera, et cetera; there's other things he deals with. So, that is important. He knows that, and it's because he knows the amount of revenue that's come in for that case type, and he knows the number of cases that contributed to that revenue.
So, this is an important number, because with that number, he can do certain calculations that without it, you can't. Okay, so that's the first thing; is average revenue per case or per matter, or per case or matter type. You have to determine what is important for your firm.
What are the numbers that matter most? What are the heavy hitters, in terms of revenue streams? That's another way think about it. It's like, what are the revenue streams that come into the business? And, you need to figure out the average revenue per matter.
Now, I will say there's some other transactional lawyers that work with closing deals and have clients that hire them repeatedly to handle matters. Now, you can look at average revenue per client. I think that'd be a really fascinating thing to look at and to use that, so that you know if you're gonna go out and get X number of clients, what that probably means for your business. I think that's fantastic.
But I also think, that does not mean that you don't have to look at average revenue per matter type. So, even if you're handling some transactions, that some of them are $30,000 and some of them are $5,000, you still want an average, because it is a fulcrum with your planning. And so, within that one matter type, even though it spans so greatly, you still want an average.
Now, if there's an outlier, and this is for anyone, not just transactional lawyers. If there is an outlier with a certain matter or case that came through that was very high in value, and that's not normal for your firm, kick it out; you don't need to use it.
Because it's not really helpful for planning. Unless you can bank on getting a couple of those a year, that's fine. But if it's not normal for you, just kick it out, so that the numbers are more real and conservative. And, not bloating out and making you think you need less to make more, when that's not going to be the case moving forward. So, outliers kick out.
But even if you have a matter type that spans the spectrum, you're on both ends of the spectrum in terms of value for that matter type, you know, really high value and then some really low value, still use the average. Okay, so that's average revenue.
You need to know average revenue, per case or matter or practice area, but you have to know the nuts and bolts of your business, and what is coming in. If you were to make a list of the revenue streams, that's a way to think about it, or the matter types that come in, the main ones, then make a list of those and find a way to calculate the average revenue for each of those.
And if you don't have the right data to do it, then just do it firm wide, for the whole firm, revenue divided by cases. And you can use the calculations I've provided in the podcast before. But you can find the average revenue for the whole firm.
And, you know, you probably want to look at driving that up, if you can. And so, that's something that we could talk about in the future. But having that number is still important. It's a fulcrum for your equations for planning.
Okay, the second thing that we use, when you think about planning and projections, is percentage of revenue that each matter type or practice area contributes to the overall revenue. So, if you imagine, you know… I just said you make a list of those “revenue streams,” the different matter types or practice areas that are really bringing in the revenue, then next to each one of those, you should be able to put what percentage of the total revenue it contributed.
So, let's say there's $100,000 of total revenue for the firm. And $25,000 came from DUIs. Okay, so that is 25%, contributing 25% to the overall revenue; DUIs is. And then, you go down, and then you go down, and you go down, for each one, for each practice type, or matter, or case type, or revenue stream; whatever is easier for you to think about. But you should know the percentage of revenue that it contributes.
Now, I always have my members look at; okay, this is the current percentage of revenue that it's contributing, what is my target? There are some times that there are certain matter types or case types or practice areas, that are easier and higher value. So, they take less time in the firm and they're higher value; you probably want more of those.
So, if you currently have a matter type or case type that's like, easy breezy for the firm, and the value is really great, essentially, the margin on that case type or matter type is really great, and healthy for the business. And let's say right now, it's about 50% of the overall revenue of the firm, but you want to raise that.
So, if you want to affect that number to go up… So, let's say you want it to be 60% of the revenue of the firm, not just 50%, because everybody wins, the margin is really great on that specific matter type or case type, then you can put the target percentage, would be 60%. You do that for each of the practice areas.
Sometimes you'll want them to go down, it's too much work, it's not worth the work, in terms of the margin that the business makes on that case type or matter type. So, if currently you have one that’s sitting at 30% of your total revenue, it’s coming from this practice area where the margin’s really low, then maybe your target percentage for that is like 15%, like you want that to be driven down.
So, this is important to know; your current percentage of revenue that each case type, matter type, or practice area, is contributing and the target for you. Really think about what do you want out of these, and set a target for percentage of revenue.
Now, when you have a revenue goal, you can set the overall, mother revenue goal for the firm. You can take that revenue goal, times the percentages there, and it'll tell you how much revenue you need to do for each practice area, or case type, matter type.
So, let's just run through an example here. Okay, for the sake of simplicity, I'm going to call each thing that we're breaking down. We're talking more about what is contributing revenue to the overall revenue. I'm gonna call that “matter type”. It may be case type for your firm, it may be practice area for your firm. But this revenue stream, I'm going to call matter type in this example.
In this example, I am going to have three different matter types that we're going to look at, in terms of percentage of revenue that it's contributing. And then, there's a miscellaneous bucket that I'll chat about, as well. “Bucket” is a decent word, you can think about these as buckets of the business, in terms of revenue.
So, matter type one: The target percentage is 50% of the overall revenue. You want matter type one, to contribute 50% of the overall revenue. And that's because, maybe you've looked at it was 40, and you want it to be 50. Right? These are targets; you get to decide how you set your targets. But if you determine you want your target to be, for matter type one, 50% of the overall revenue, it's good to know.
Matter type two: You've determined that the target, for matter type two, is to contribute 30% to the overall revenue.
Matter type three: You've determined you want to be 15% of the overall revenue. And then, there's some miscellaneous stuff that comes in, that we don't really need to measure what's going on with that, but that is going to be a piece of the pie, right? A piece of the total revenue for the firm.
Let's say the firm's goal is $500,000. If the goal for the firm is $500,000, and you want matter type one to contribute 50% of that revenue, that means that the revenue goal, for matter type one, is $250,000. You with me?
Now, for a matter type two, you said you wanted matter type two to contribute 30% of the overall revenue for the firm. So, that means it's $150,000; is the revenue goal for matter type two.
The revenue goal for matter type three; is $75,000. Because you have stated that you want matter type three to contribute 15%, towards the overall revenue goal.
So, we have 50% for matter type one, 30% of overall goal for matter type two, and 15% for matter type three; those are your target percentages. And then, you take the overall firm goal, which you have set, and I've done a podcast on how to set goals. You've taken the overall firm goal, and you multiply it by .5 to get the revenue goal for matter type one. By .3 to get the revenue goal for matter type two. And .15 for matter type three.
So, this is how you determine how much revenue each matter type should bring in, or case type, or practice area. This is very important, because now, not only do you have a firm revenue goal, you have it broken down, in a very smart way, working backwards to the revenue goals for each matter type.
And here's the thing, at the beginning you already, of this episode, we talked about an average revenue per matter type. So, you already have that. And let's just say in this example, that matter type one, the average revenue for that is $5,000. Okay, well, we said that we wanted it to contribute 50% to the overall goal of $500,000.
So, that's $250,000 revenue goal for matter type one. And we know that the average revenue, for that matter type, so per matter, is $5,000. So, that means, you need 50 matters, through the door, in order for that revenue goal to be hit for that matter type. And that's because 50 matters times $5,000, the average revenue per matter, will give you the $250,000.
So, by knowing your target percentages, allows you to calculate a revenue goal for that matter type. And then, knowing your average revenue per matter, for that matter type, allows you to figure out how many cases you need through the door, in order to hit your revenue goal for that matter type. Do you see what I'm saying?
This is so powerful. So, if you know the revenue that each practice area or matter type is supposed to do. And you also, know the average revenue for each matter type of practice area, you have so much visibility and ability to plan in a smart way moving forward, that is based on real numbers. And it's not based on what you just like to hit.
Now listen, you can set goals on based on what you'd like to hit. I'm not saying that, but you still have to know this information. And if you don't know this information, you are at a disadvantage for your firm. This is important.
I walked my members through this, and some of the members this is not their first rodeo, so they were just getting right into it. And then, some of the members are just trying to wrap their heads around this and that was the beauty of Friday. Was that they were willing to ask the questions about it, they couldn't see the connection at first.
And I thought; oh my gosh, Melissa, come on, make this connection for them. And so, then I helped to explain it in this way. I mean, they have all of the blanks in their workbooks to fill in. They had all of the numbers that I'm talking to you about. They just didn't see how to bring them all together to help make their plan.
And so, that's what I want this episode to serve as. This is a way to bring all of the information, all of the data together, in a way that allows you to plan in a very smart, strategic way. I'm hoping this is helpful.
I realize, without a workbook and all of that, like, without me guiding you through on paper, this may be tough to wrap your heads around. But I thought I'd give it a shot. I think everyone should understand this for themselves.
And yeah, I facilitated this with my group. And we can dig in on this stuff, and be helpful, and think about things, and work together on creating their plans. But if you're out there, and you're doing this alone, this is still something you should understand for yourself. This is something that you should understand for your business; it gives you leverage.
So, I hope that what I've shared here today, between the average revenue per matter type, or case type, or practice area, plus understanding the target percentage of revenue for each one, for what it's going to contribute to the overall revenue.
Those two things will help you immensely, when you are trying to figure out what in the heck you should bring to the door. How much of it. What you should expect from that, in a granular way, that's doable to get; all of this data is doable to get. It may take you more work on the front end, if you've never done this before. But God, it's worth it. It's so worth it.
You have an awareness and clarity, as a business owner, that 90% of law firm owners, maybe more, don't have. And it's not because people are idiots, it's because no one is really talking about this and sinking their teeth into it. And if it's not your game, if you don't really understand that this is something that should be looked at, then of course, you're going to be missing some information.
So, I'm hoping that I can bridge the gap for any of you who are listening. I want to increase the percentage of law firm owners that use this information. I want to increase the percentage of law firm owners that understand the importance of these numbers, and how they can be a fulcrum inside of your business and for planning purposes.
So hopefully, that's what we've accomplished here today, on this podcast.
Oh, and if I've lost you, please go back and listen a second time. It's all spelled out, laid out here. And you can plug in your own numbers as we go along. Like, push pause as I talk about each thing. Push pause, get your numbers, write them down. And then, listen again, and then, push pause and write your numbers down.
I think it's going to have to get nitty gritty with it, at first, and then, it'll just be easy.
So, all right, everybody. Thank you so much for tuning in this week. I will see you here next Tuesday.
Hey, you may not know this, but there's a free guide for a process I teach called, Monday Map/ Friday Wrap. If you go to velocitywork.com it's all yours. It's about how to plan your time and honor your plans. So that, week over week, more work that moves the needle is getting done in less time. Go to velocitywork.com to get your free copy.
Thank you for listening to The Law Firm Owner Podcast. If you're ready to get clearer on your vision, data, and mindset, then head over to velocitywork.com where you can plug in to Quarterly Strategic Planning, with accountability and coaching in between. This is the work that creates Velocity.
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