How much of your work are you writing off? The average law office writes off about 14% of their bills annually, with discounts increasing each year. If your office gives an average amount of write-offs, and you calculate your bills for a 30% profit margin, then those write-offs eliminate almost half your profits. Ouch!
Why write-offs happen
To reign in write-offs, it helps to know why they happen. This boils down to a few reasons:
- Poor initial estimates
- Inefficient office operations
- Scope creep
- Lack of communication with clients
Take the following example:
You meet with a client by phone. Their issue sounds simple, so you pass it to a junior attorney. He hasn’t dealt with the problem before, so he goes down a research rabbit hole, spending twice the estimated hours. In the end, he gets back to the client with a great answer.
You work with him on billing, only then discovering how many hours he spent. Knowing the client will balk at the price, you discount the bill by 30% before even sending it to the client. You keep a loyal client, but your junior associate has cut into the practice’s profit margin.
Now, what will stop that from happening in the future?
How to prevent write-offs
Deciding to hand work off to the lowest-pay partner was a good idea. But the attempt to reduce the client’s bill backfired because of poor communication.
Give Initial Estimates in a Clear Engagement Letter
Set expectations by taking the time to write out a client’s request and produce a budget estimate. This letter will function as a tool for the office to hand projects between partners.
If the junior associate had a copy of an Engagement Letter estimating four hours of work, he wouldn’t have spent all day on the project.
Give clear guidance to staff
A fifteen-minute conversation can guide a less experienced staff member in the right direction. This will then cut down on the amount of research time they require and prevent senior associates from having to clean up mistakes.
Set out expected hours per project in advance, and track your time so that your whole team can stay on the same page about how long things take.
Limit extra work on projects
When starting work on a project, associates might notice other things a client needs that they didn’t ask for. Maybe it feels easy to draft a fifteen-minute letter on their behalf and then make a fifteen-minute phone call about another aspect of the issue.
Scope creep is dangerous to your bottom line. So is yanking staff members between projects. In some cases, clients will simply refuse to pay for work handed off to a different team member mid-project because that team member wasn’t listed on an initial client agreement.
When you take on a project, develop a clear Scope of Work, assign capable team members, and avoid changing the team.
Communicate with the client during and after projects
If you decide to increase your rates, be upfront with your clients. Don’t let them find out when they get the bill! If you are running into difficulties, if you need to replace a team member, or if you need to consult a specialist from another office, let the client know.
When you do send the bill, make sure that it is easy to understand. Ensure your invoice includes what a client needs to see:
- Dates for work completed
- Clear descriptions of each charge
- Date the bill is due
- How to pay (hopefully with an online option and optimally with a payment plan)
- What will happen if they don’t pay on time (a late fee or interest on unpaid balances)
Get everyone on the same page
Clear expectations and good management are key to avoiding write-offs. Hosting a business discussion with associates in which you set a goal for your write-off limit can go a long way.
Make sure that all your associates act consistently toward your clients. For instance, set a standard percentage if you often discount work done for nonprofits or small businesses. Also, enforce a limit on how many family and friend discounts are handed out.
Any time you do write off charges, put them in the bill to make the savings clear. This will prevent clients from expecting the same savings next time and avoid a cycle of increasing write-offs. Again, careful management and clear communication will yield high returns.