The presentation kick starts with an analysis of Toby's title "I'm the AFA guy", and props to Greg for putting Toby's presentation together with Prezi as an alternative to PowerPoint. With the geek stuff out of the way, Toby turns to the real meat of the presentation. Can you use business intelligence and analytics to demonstrate profit. Or more simply put, are we making money yet?
The first assertion is that we have to come up with a way to be more effective, law firms are "built for the past". To move into the future rather than focusing on existing models of profitability, firms need to start looking at new models for revenue and find a definition of profitability that rewards work and equity.
Profit comes with three levers, realization, leverage and utilization, leverage, btw is in hours, not headcount. By isolating the partner compensation, you can use that number as a factor to manipulate and analyze margins and increase profitability.
Beware when you create a model and share it with your partners, they will "litigate the data" and scrutinize the numbers. Know that no matter what you do, this will always be the case and you need to be consistent in your data sets. Keep it simple so that the data is "actionable and influences behaviour". You can use technology to help you keep the data consistent. Play with the models, change the discounts, the rates, the realization, the leverage and you will see that "leverage is always the answer".
Everyone in the room is engaged, asking questions and thinking about the issues surrounding profitability. It may be because Toby is wicked smart, and Greg makes great presentations. But the reality is more likely (or also likely) that analytics, profitability models, alternate pricing and how to test your firm's profit fitness is becoming an increasingly important way for firms to be competitive. Demand from clients for alternative fees and reduced yearly legal spend is only going to escalate. Which leads to two questions. One tactical and one strategic. Tactically, for firms that are already leaner and arguably more focused then in previous years, the question is how to extract and use the data they create on a regular basis to tell them something about the way they are doing business and the where they can improve margins, manage time and be strategic with their analytical thinking. Strategically, the more difficult question is, how do you and your "firm define profitability"?
And how do you start that discussion in your own firm? Change the conversation "from revenue to profit", do it, start today and see what happens.