The public perception seems to be that lawyers make a lot of money, but in reality, that is not always the case. Most people might not believe it, and a small percentage of lawyers may scoff at that fact, but many of you know the truth.
You go to law school, spend a small fortune, and come out the other side only to find you owe an enormous amount of money. Worse yet, you’re not even making enough to constitute making a “good living.” Why is that?
Let’s examine the real reasons why there are so many broke lawyers.
“…the number of jobs in small firms has generally been increasing in recent years, and for every job in a large firm taken by a Class of 2013 graduate, two were taken in a small firm.” (Source: NALP)
Small firms mean 2-10 lawyers. Which equates to over 40% of US lawyers working in small businesses. Add in solos, and that number approaches 50%. (Source: NALP)
Compound that with a small business failure rate of 80% across the board (according to Bloomberg) and things look grim for entrepreneurial lawyers and those they employ.
Running out of cash is generally the end game, which lawyers blame on their inability to get enough paying clients, hire good help, and burnout from lack of systems.
But in the root-cause analysis, these are outcomes resulting from a handful of deeper issues that foreshadow the struggle, strain, and ultimate failure of most lawyers before they even hang their shingle.
So, what does a savvy lawyer need to know to avoid these predictable perils and save themselves from falling into the pit of broke lawyers?
A “Door Lawyer” takes anyone who walks in the door. Need a divorce? Real estate closing? Litigation? They’ll take anything they can get.
The sad thing is, they think this is the way to making their law degree pay off; it’s a short-term mindset with catastrophic results. How good can you really be when you’re spread so thin?
Before hanging their shingle, savvy ‘lawyer-preneurs’ do their homework. They scout out a niche that’s in demand with an audience willing and able to pay for their legal services. Once identified and proven, they work hard to become the best in their community at serving that particular niche. They become a ‘go-to’ lawyer for their specialty, and they drill deep.
‘Drilling deep’ means they set up systems to attract and serve a steady stream of clients for their particular type of legal service, then hire staff to operate those systems at lower hourly rates, freeing up time for higher-value work.
That’s how you get profitable…
But how do you make sure you’re profitable in any market?
Let’s take bankruptcy as an example (of what not to do).
Bankruptcy was big a few years back. But bankruptcies fluctuate as part of a cyclical market. Meaning, it’s not a durable niche.
Now, with fewer bankruptcies needed in the market, many lawyers who lucked out in that niche are still clinging to it for dear life… thus, bankruptcies have become a commodity, a dime-a-dozen. So it’s not nearly as profitable.
Pick a niche with an ever-expanding market base.
One with a clear need or desire for your services, and a willingness/ability to pay. That’s a tall order. There aren’t many niches that meet those steep criteria.
But now that you know what to look for, you can find one and set up your systems to drill deep and keep drilling for decades.
Here’s a hint: The most profitable niches are not transactional, like bankruptcy, divorce, DUI, litigation. Once you complete your work, assuming the client pays you, that’s the last you’ll likely hear from them.
The most profitable niches are quite different (in any business).
Look at what’s happening with software. Microsoft used to sell you Office, and they’d do okay on it. Then they’d sell you an upgrade a few years later, which is like someone coming back with another DUI or another divorce (yikes).
What Microsoft finally figured out, and many other software companies are launching their businesses to achieve, is called recurring revenue. You’re probably familiar with monthly insurance premiums, gym memberships, phone, and internet subscriptions. Microsoft Office 360 is their solution to the recurring revenue challenge.
Rather than paying a few hundred bucks every few years, they now charge $99/year or $9.99/mo. It’s a lot easier to swallow and makes the sales job for Microsoft more manageable because now they know how much you’ll be paying and how often, rather than wondering when you’ll be back for more.
How will you solve the recurring revenue challenge for your law business?
Well, people don’t need bankruptcy on a monthly basis. You have to identify a niche that will allow you to charge on a recurring basis—even if it’s just for back-end maintenance after an initial, much larger matter is handled.
The bottom line here is that you want to create clients for life, rather than starting every month over from scratch.
One practice area where this works incredibly well is estate planning. Another is outsourced business counsel.
Estate planning, done right, can open the door to a lifetime relationship with clients who have the willingness and ability to pay you for services. Since the majority of families in your community need estate planning, the niche is deep and wide, and renewable, as more and more families are starting every year.
Likewise, outsourced business counsel opens the doors to work that is often exciting, as you provide a long-term relationship with small and start-up businesses that have the potential to grow (or even take off/explode.) You also have the option of choosing to work with businesses in fields for which you have a passion—say sports medicine, travel, media, or even fashion. Regardless, there are countless businesses out there who need your help–another ready-made market.
In both these niches, you can easily create recurring revenues, either based on tiered fee packages or membership systems.
Notice how these two examples pre-empt the perceived cause of law business failure—not getting enough clients and running out of cash—and will allow you to confidently drill deep, creating systems and hiring a team to help you focus on the high-value work you went to law school to offer in your community in the first place.
The best part is you don’t have to start again; both are niches you can add to your existing practice. When you build your law business on the right foundation, in the right niche, you have different challenges, which we will cover in part 2. We will also look at things like positioning and differentiating yourself from other lawyers in your community so you can become the ‘go-to’ lawyer everyone refers their friends to—while charging premium fees for your services.
Are you interested in going from broke, to profitable?
Why not explore the feasibility of building a law practice and a life that you love? Book a call with a Law Business Advisor to see if the New Law Business Model is right for you.
Ready to Start and Build a Law Practice or Turn Your Existing Practice Into a Business You Love? Learn the systems you need to turn nearly 100% of your prospects into clients who are happy to pay you in this free mini-class from NLBM.