Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. Our firm is an 18 lawyer general practice firm in the western Chicago suburbs. Recently, we are beginning to take on more personal injury cases on a contingency fee work which is creating some cash flow strain. Do you have suggestions regarding firms doing contingency fee work?

A. Contingency-fee work can pose major risks for law firms, as they earn no fees if they lose those cases and sometimes have profits deferred in protracted litigation. In addition, cases can be lost with no fee whatsoever received. Whether your firm is considering "big deal" litigation or bread and butter run of the mill personal injury litigation you may want to consider the following:

1. Don't dabble in contingency fee work. Take it seriously and insure that your case portfolio is adequately diversified.
2. Reduce case portfolio risk and improve case profitability by implementing a sound case intake system to insure that you are selecting quality cases.
3. Realize that you have to spend money to make money and that you simply may not have the financial resources to take on certain cases. Learn how to say no and when to refer these cases out to others.
4. Insure that you have an adequate portfolio of cases (number of cases, size and type) to insure diversification and manage risk.
5. Analyze the profitability and return on each case and ascertain what can be done differently on future cases. Typical metrics include effective rate and/or LODESTAR.

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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.