Fixing the Problem of Fixed Costs
Published October 14, 2014
Some costs are fixed in any business, including the business of law. There is no getting around that. You have no choice about paying for certain things, such as technology, banking, continuing education, etc.
However, some of these âfixedâ costs are fixed and donât have to be. For example, you need to keep up to date on technology, in particular so that you wonât be guilty of malpractice, but you donât have to spend more than you need to.
This is particularly true of payroll expenses. Last year, I wrote about the issue of too much pay for too many lawyers. The article discussed a blog by Bruce MacEwen, which noted that firms are charging prices that are too low simply because they need clients for the too many lawyers they have hired for too much money; and a book on law firm economics called Declining Prospects, by corporate attorney Michael Trotter, which showed what happened to firms that added large numbers of lawyers several decades previously.
A 2014 washingtonpost.com article by Jena McGregor called âBonuses are making up a bigger and bigger percentage of companiesâ payrollsâ discusses one way for companies to get around the problem of fixed payroll costs: give bonuses instead of raises. Bonuses are a larger percentage of payroll than in the past, and companies say that this will continue, according to a survey by Aon Hewitt, a consulting firm, cited in the article. Ken Abosch, head of Aon Hewittâs compensation practice, reasoned that bonuses allow companies to reward employees without making a long-term financial commitment that would be detrimental if the economy worsened.
In these tough economic times, it is important for law firms to pay attention to effective ideas for keeping down costs and, thus, raising opportunities for financial success.
Categorized in: Coaching, Financial and Cash Flow Management
Audience type: Administrators, Associates, Large Law Firms, Small Law Firms, Sole Practitioners