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Volume Practice v. Small
Practice: Some Lessons from
the School of Hard Knocks



By Marjory Harris, Esq.
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Marjory Harris has been practicing law since 1974, in a variety of settings. She believes that it’s the net that counts, and the net includes time to smell the roses and enjoy a cappuccino.
   
 
Disclaimer

I am not an economist or a business consultant, just an attorney who has practiced in large and small firms over the past 38 years. I don't recall much from my college economics course, but I remember we had to study the concept of "margin" or the minimum return below which an enterprise becomes unprofitable. In law school I learned that the lawyer should focus on damages first, then liability, since a client might have a good case but with miniscule damages or, even worse, a “damnum absque injuria.”

A brief stint as a social worker in New York City convinced me that the bigger the system, the more inefficient. “Economies of scale” may apply to making widgets, but what about cases?

Recently I asked my colleagues about their experiences with volume versus small practice and was surprised by some of the answers. Many asked me what I meant by "volume practice." A number wrote to me privately and told me the size of their caseloads and their frustrations with the current convoluted and technicality ridden workers’ compensation system, where form matters more than substance and the Constitutional mandate of “substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character” is ignored. No one, however, defined “volume practice.”

To me, “volume practice" means so many cases that you cannot pay close attention to each one of them. A “small practice” means you are able to know and keep track of what each case is about and to do the work as it arises. There are in between situations, where the firm is large but each attorney has a manageable caseload.

While there are some firms that handle many hundreds of cases, but have numerous attorneys so that each one can actually undertake the work required of the ethical, competent workers’ compensation practitioner, there are other firms where the philosophy is “turn ‘em and burn ‘em” and what is required by competent and ethical practice is rarely if ever done.

So, while there are certainly some fine practitioners who handle a large volume of cases with a number of well-trained staff to help them, they also need large offices and lots of insurance. Do they really net significantly more than those who have small practices? And what about leisure time?
 
“Margin" is the minimum return below which an enterprise becomes unprofitable.
rule2   rule3
 
It’s The Net That Counts

I started my own practice after seven years of working for large firms and legal departments and not having to worry about the economics of practice. I soon learned that, as an opponent on a divorce case told me, "it's the net that counts."

I heard many times over the years that you can't make any money practicing workers’ comp law unless you have a volume practice. I always understood that to mean that the fees are so low, you have to have a high number of cases in order to make a decent living. None of the people who talked about this discussed overhead and the fact that a high volume of cases requires high overhead, since there is simply no way one attorney can handle hundreds of cases without assistance. That means more fixed monthly outgo for salaries, rent, insurance, etc.

Personally, I have made a good living with a low-volume practice and so have many of my colleagues. I believe high volume means lots of low fees, and have written articles that imply that big cases are not discovered in such situations (see, e.g., “Managing the Big Case").

High volume is not always low quality, but it could well become that. Quality is related to time spent on a case and the acquired knowledge of the practitioner. We may be born to be lawyers (i.e., have the required aptitudes) but no one is a good lawyer without years of study, many hours of work, and the cultivation of best practices.

 
High volume is not always low quality, but it could well become that. Quality is related to time spent on a case and the acquired knowledge of the practitioner.
rule2   rule3
 
Problems of Volume Practice

A major problem with a volume practice is the difficulty of doing many cases well. Much will necessarily be delegated to less talented people than yourself. Potential big cases may disappear in the process, not because they never walk through your office doors, but because they are never recognized as potential big cases.

A volume practice carries more risk of malpractice claims: a blown statute of limitations because someone failed to calendar something, or to recognize the importance of a document or phone call. Unhappy clients may not be able to get through the chain of command to speak to you, and instead start calling other attorneys or the State Bar. Of course, these things can happen in a small practice with an impaired or inattentive attorney, but it seems much more likely in a volume practice that important information will go unnoticed.

Then there is the specter of high fixed overhead in conjunction with the decline in either the volume of cases or the fees obtainable. After SB 899 rolled down the tracks and hit us like a multi-car freight train, almost overnight the value of permanent disability, the main source of applicant's attorney's fees, was reduced. Also at the beginning of 2004, vocational rehabilitation cases (and fees) were heading to extinction. Small practices with low overhead were able to weather the storm and have the time to study ways to deal with the new laws. Some larger practices disbanded, or attorneys took early retirement. Bigger firms scrambled to cut overhead or increase caseloads.

One colleague told me his business plan to deal with SB 899 was to double his caseload. But that increases overhead and does not double net. While it may decrease the percentage of net loss, the time needed to attend to the increase in cases and overseeing added staff may create an unbearable workload.

To summarize the perils:
  1. High fixed overhead, whether cash flow is good or bad;
  2. Higher malpractice risk;
  3. No or limited time “to smell the roses.”
 
A major problem with a volume practice is the difficulty of doing many cases well.
 
 
Small volume practices have their share of problems.

Some of the perils of small practice:
  1. Isolation (this can be fixed by networking, attending meetings, participating in legal forums);
  2. A small client base may not generate enough referrals (but writing, lecturing and other forms of outreach can make up for that).

So while the advantage of high volume is potential for greater profits (if you are the owner or a partner), the advantage of a small practice is time for leisure or pro bono work, ability to work on a laptop from almost anywhere, and being able to call your own shots.

   
 
 
Spending Money to Make Money

It is said, “To make money you have to spend money.” The question is what to spend it on, and how much to spend.

When I started my own practice, I shared space for awhile with an attorney who spared no expense decorating his rented suite: he installed fixtures such as green silk wallpaper and upgraded marble bathroom sink and the like, all of which was lost when the landlord refused to renew his lease due to his loud and angry outbursts at other tenants.

That same attorney bought genuine antique Victorian furniture. The horsehair sofa was extraordinarily uncomfortable, and clients made to wait suffered visibly.

This attorney started his practice with a large debt to pay for the décor, assuming he would make it all back and more by wowing clients. But the kinds of clients that consulted him knew only that the suite was gloomy, uncomfortable and old-fashioned.

Another attorney rented a room in his suite and, as he required, put in Victorian furniture. She rented hers, a wise move. She started her practice with minimal debt and was soon making a profit.

 
 
 
 
The Dilemma: Will Volume of Cases
Increase Profit?


One would think that the more cases, the more fees, yet there are practices with a large volume of cases that barely break even. I received a sad email from a respected colleague describing an endless grind with high overhead and a large caseload of mostly small fees, and frustration with myriad bureaucratic processes. I had some conversations with attorneys with huge caseloads, 70% overhead, 60+ hour weeks, and not-so-high nets.

High volume but low net may result from one or more of these factors:
  1. Fixed high overhead from salaries, rent, debt payments, etc.;
  2. Staff not trained and/or not efficient;
  3. Poor or non-existent case selection protocols;
  4. Changes in law or procedure that reduce fees per hour: apportionment, UR, MPN issues, the QME panel process mess;
  5. Changes in health that affect work hours or performance.
 
High volume does not guarantee
high net.
 
 
Some Practice Improvement Tips

What ever size your practice is, efficiency improvements can increase profits. I had a chance encounter on a train with a legal assistant at a defense firm, whose job involved summarizing applicants’ deposition transcripts. I was surprised to learn that the firm did not use TextMap for this process, but just made comments in a Word doc. It seems to me a waste of time and money not to use dedicated and reasonably priced software whenever possible.

Some approaches to consider for improving efficiency and reducing overhead:
  1. Use contract attorneys for certain functions;
  2. Use outside services as needed rather than investing in staff or equipment;
  3. Use case selection protocols to weed out cases likely to have poor outcomes. While some decry “cherry picking” and insist their firm takes on all comers (as though this is a virtue), the fact is, if you work on contingent fees you need to say no to certain types of cases or clients, unless there is a sound justification for taking on a pro bono case (appeasing friends, relatives, a referral source, etc.) The point is to think about this before taking on time-consuming and poorly paid work.
  4. Software to improve quality of practice and prevent “reinventing the wheel” over and over (see, e.g., “Computer Corner: Analyze Evidence – and more – with CaseMap 10”).
  5. Good quality office equipment, voice recognition software and headsets, etc.
  6. An effective marketing plan (see “Legal Marketing and the Web: Tips on how to increase your presence and clients).

 
Affordable efficiency improvements can increase profits.
 
 
Psychological Considerations

When deciding how to build your practice or how to make an existing practice more profitable, you must first consider whether quality and “best practices” is the focus, or simply making money. You should also consider how valuable life-away-from-law is to you.

A colleague advised, “There is no right way to do things. How people practice is dependent upon their personalities and inner needs and drives.” I agree.

Since I started my own practice on April 1, 1982, I have preferred to buy high end electronic equipment and software rather than employ help. In the past I had some very occasional help with filing, but I am now paperless so I don't even need that (see my article, “Baby Stepping Your Way Toward the Paperless Office”). The last time I had a secretary was 1987. The electronic revolution made it easier and more efficient for me to do my own typing, using voice recognition software and an always evolving system to save and systematize my work. When I need “spot” help, I hire or trade services. In all the years since I set up my own shop, I found time for avocations, studies outside the law, extensive travel, and the like. I came to the conclusion that the old mantra that volume practice was necessary to make a good living as a workers’ compensation practitioner was hooey, that it is the net that counts and whether one prefers a particular style of practice to another.
 
There is no right way to do things. How people practice is dependent upon their personalities and inner needs and drives.
 
 
Some Colleagues’ Comments

Some colleagues had this to say:

We were asked whether it is practical to have a high volume of workers’ comp. clients… IMO, the answer is a resounding “no”. It’s barely practical to have a small workers’ comp practice.

I could not devote the time needed to prevail in my serious injury cases should I have gone high volume

In my opinion SB899 created a situation in which a volume practice is much more difficult. In my opinion SB899 forced us to act more like PI attorneys.

One colleague wrote, “I see merit to having a smaller case load with low costs for advertising and personnel. My concern would be what happens if you depend on a certain source for cases and that source leaves you high and dry?” My answer to this colleague is not to depend on just one source. Over time, if you are really helping clients and developing a reputation for excellence, you will have clients coming from many different sources. It also helps to have a good Internet presence.

In the end, it comes down to a personal choice. Some people want to build as big a business as they can, and others want a small and more manageable business where they don't have to rely on others showing up for work and requiring paychecks whether fees come in or there's a dry season.

 
In the end, it comes down to a personal choice.
 
Marjory Harris began practicing law in 1974 as a defense attorney and later became an applicant's attorney and a certified specialist. She continues to represent injured workers at the San Francisco, Oakland, San Jose and San Bernardino venues and mentors attorneys on big cases.

Reach Marjory at (888) 858-9882 or
email to MHarrisLaw@verizon.net www.workerscompensationcalifornia.com