Odds are your firm is underestimating the share of overhead expenses attributable to associates while the labor costs for associates are growing fast in your market. Unpeeling the layers of this dynamic reveals the first hidden cost of inefficient legal research – longer time to profitability for associates.

First, let’s level set by assuming for the sake of argument that your firm operates like the fictional law firm Pearson Paulsen Pyper, also known as PPP, for short. PPP’s org structure is comprised of the following roles and responsibilities with some degree of overlap:

• Partners who own the firm, bring in and manage client relationships, provide strategic oversight on the overall direction of cases, and are lead counsel on complex litigation matters.some text
  • Mid-level associates who supervise junior associates, manage client matters, and take the lead on drafting critical sections of briefs or other work product.some text
    • Junior associates who, under the close supervision of more experienced attorneys, work on research and discovery tasks assigned to them.

Associates cross the break-even point and become profitable when the revenues generated from their billables exceed the labor costs and overhead expenses attributable to them to date. In practice, partners recognize that junior associates may not bill enough to be profitable early in their careers. However, the business case for accepting this drag on profits is that associates eventually gain valuable experience that reflects in higher billings for their specialized expertise. Even for associates who leave the firm before becoming profitable, they still take on necessary tasks that free up senior attorneys to focus on more strategic work and bring in more business. These evident costs are outweighed by the benefits. However, there are hidden costs that make this tradeoff much less attractive.

First consider a calculation for associate profit margin: [revenue from associate billables] / [associates’ labor costs + overhead expense attributable to associates]. To find the hidden costs, first look at the denominator. Labor costs are salaries plus benefits; overhead expenses are all operational costs other than associates’ labor costs that are not directly billable to clients. Your firm probably does not fully reflect the costs of intensive and prolonged supervision of junior associates caused by inefficient legal research in their labor costs (i.e. the left side of the denominator) and likely does not treat it as an overhead expense. Yet, it is a recurring expense that may vary across research assignments, but in aggregate, functions as a fixed cost your firm incurs to deliver quality legal services. While some of the higher salaries for mid-level associates may reflect this recurring expense, it may not be fully reflected, particularly at law firms that practice some level of lockstep compensation for associates.

Look up at the numerator to find the second hidden cost. In practice, the average law firm’s billing realization rate is only 86% and inefficient legal research is a root cause problem in that low rate. Attorneys take time to grow into capable experts who can operate independently while consistently delivering exceptional work product. Write-offs reflect this reality. However, legal research inefficiency steepens the learning curve. With more efficient processes and tools, junior associates would have more time to spend on other substantive legal work. This would not only help them hone their skills and gain valuable experience, but it would also lead to fewer write-offs because there would be less billables associated with inefficient legal research.

These hidden costs lengthen the time to profitability for associates because inefficient legal research causes associates to incur more unbillable costs on law firms than typically realized and generate less revenue than they otherwise would with more efficient processes and tools. This dynamic is further exacerbated by rising labor costs for associates.

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Your firm is probably promoting fewer associates to equity partnership and relying more on lateral partner recruitment. Focusing on the strain mid-level associates are under points to the third hidden cost of inefficient legal research – reduced number of homegrown partners.

We already know that at PPP, mid-level associates are situated in the middle of the organizational structure between partners and junior associates. More to the point, PPP’s mid-level associates are the backbone of the firm both operationally and financially. They command the highest salaries among non-partners and have some of the highest billables at the firm. Mid-level associates take on the bulk of day-to-day legal work and are the experts that the firm relies on most to step up when a client has an urgent legal need. Beyond their own legal work, they are indispensable to PPP’s business model in that they enable the firm to develop and leverage junior associates. Without the guidance, oversight, and example of mid-level associates, PPP would not employ as many junior associates as it does because the junior associates would be too inefficient and error prone. Moreover, mid-level associates support partners with client relations, case management, and legal strategy. Mid-level associates’ capacity to be excellent with their own work and cover for others, helps keep PPP’s operations running smoothly, revenues growing, and profits high. However, there are hidden costs that limit billable hours and raise expenses.

The inverse of longer time to profitability for junior associates due to inefficient legal research is lower profitability for mid-level associates. The time mid-level associates spend on inefficient legal research takes away from the time they could use to bill for other valuable activities, leading to lost revenue and profits. Mid-level associates engage in redundant work, particularly when under time pressure, they step in to research a matter or rewrite a draft originally assigned to a junior associate. Moreover, inefficient legal research eliminates time that mid-level associates could use to further mentor and develop junior associates. Instead, the onslaught of tasks at busy law firms means that mid-level associates are continuously bogged down in the weeds so they can’t see the trees much less the forest. In this case, the forest is greater emphasis from an earlier point on introducing junior associates to higher level more strategic legal work done by mid-level associates. Inefficient legal research prolongs junior associates’ development to independence which in turn holds back their graduation to mid-level responsibilities.

Furthermore, legal research inefficiency reduces morale and engagement, as mid-level associates often find themselves having to do both their own work and that of junior associates. Too often, this leads to unpredictable work demands that can upend project plans or personal schedules at a moment's notice. The strain on mid-level associates due to inefficient legal research contributes to burnout and dissatisfaction and can over time affect the quality of work product and client satisfaction. This cycle of inefficiency and dissatisfaction not only impedes the professional growth of associates but also ultimately affects the firm's revenue and reputation.

Additionally, inefficient legal research leads to higher expenses. Inefficiency undermines mid-level associates’ growth and the firm’s future success because there are fewer opportunities for leadership training and professional development. This lowers the number of mid-level associates who demonstrate the competencies needed to ascend to equity partnership and increases turnover and recruitment spending to replace mid-level associates who leave firms. To compensate for the limited pool of potential homegrown partners, firms rely more on recruiting lateral partners. Partners who are recruited away from other firms often command stellar compensation and bonuses, putting pressure on the bottom line of even the most profitable law firms. With more streamlined legal research tools and processes, more mid-level associates would have more time to develop deeper expertise in emerging areas of the law or growth areas for the firm. Developing mid-level associates into experts in these areas and winning new business with home grown talent would have positive knock-on effects such as improved long-term strategic planning and a strengthened culture.

Mid-level associates are continuously bogged down in the weeds so they can’t see the trees much less the forest.

Mid-level associates are among a law firm’s most valuable assets. However, the hidden costs imposed by inefficient legal research weakens their productivity, partnership potential, and the firm's profitability. The inability to delegate effectively due to unreliable tools means that mid-level associates end up doing both their work and the work of junior associates, often under intense pressure and ambiguity. This wastes time which translates directly into lost revenue. Furthermore, mid-level associates are deprived of opportunities for leadership training and professional development, which are crucial for their growth and, by extension, the firm's future success. Burdening mid-level associates with the hidden costs of inefficient legal research takes time away that they may have used to build a book of business or stretch their responsibilities on a client matter. Ultimately, this leads to fewer mid-level associates primed for partnership – either because top talent leaves the firm partly due to burnout or remaining mid-level associates have not sufficiently developed to make the leap to partnership. Law firms as a result incur expenses to attract and retain highly compensated laterals partners which crowds out opportunities for homegrown talent.

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Your firm probably provides low impact training to try to improve attorneys’ legal research skills when that training time could be dedicated to more impactful development areas. Shining a light on the time, money, and effort that goes into promoting traditional legal research tools illuminates the fifth hidden cost of legal research inefficiency – mounting training costs.

The most apparent costs are those directly associated with conducting training programs aimed at upskilling attorneys and enhancing their proficiency with the firm's research subscriptions. These programs often require substantial investment, whether they involve sessions directly from the legal research vendor or training provided by the firm's librarian staff. Additionally, the cost of the attorneys' salaries while they attend these training sessions is considerable. During these periods, attorneys are away from their billable work, further detracting from billable hours.

Beyond this, there are several hidden costs that stem from legal research inefficiencies. Resources are often diverted from other critical areas to focus on training, which can strain the firm's overall productivity. Moreover, training sessions may have low impact if trainees are distracted or attempting to juggle other job duties during dedicated training times. This means the firm is effectively paying for a service that is not being fully utilized. Low adoption rates, where attorneys revert to prior inefficient patterns, can arise from confusion and a lack of opportunity to practice new skills, as they are quickly pulled back into their regular workload. This leads to further confusion as attorneys struggle without a common understanding of the correct processes, resulting in errors when implementing new skills due to poor comprehension. The diminished morale among staff, stemming from a sense that change is impossible, unwarranted, or unvalued, exacerbates the issue, particularly when trying to learn new features of existing research tools.

The hidden costs of higher training expenses due to inefficient legal research practices eat away at the firm's billable hours in several ways. Existing attorneys often spend additional time correcting errors and re-learning processes, which detracts from time that could be billed to clients. Furthermore, the overall efficiency of the firm decreases as more resources are dedicated to resolving issues arising from inadequate training rather than engaging in productive, billable work. This reduction in efficiency results in fewer billable hours, undermining the firm's profitability.

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Your firm is possibly experiencing shallower gains from new practice areas, laterals, or acquisitions. Exploring this issue in depth uncovers the seventh hidden cost of inefficient legal research – diminished economies of scale.

Law firms can achieve economies of scale when they grow their headcount and expertise across practice areas or industries. While growing the firm incurs additional overhead expenses, specialization and expertise within growing firms enable them to provide a wider range of services more efficiently, attracting more business and revenue. Additionally, extensive infrastructure in larger firms, including IT systems and administrative support, spreads fixed costs over a larger number of lawyers and clients, achieving cost savings per lawyer or client served. Strong brand recognition and an expansive reach further enhance these firms' ability to attract high-profile clients and cases, thereby reinforcing their competitive advantage and profitability. Diminished economies of scale undermine the firm’s potential when it invests in growth.

Beyond these evident advantages, inefficient legal research introduces numerous hidden costs that impede a firm's ability to leverage knowledge as a competitive advantage. These inefficiencies result in missed opportunities to secure repeat business and cross-sell services to existing clients, particularly as the firm expands and handles matters outside its core expertise. Inefficient research processes can be especially challenging during expansion scenarios, such as acquiring a firm, bringing in a lateral partner, or stretching current teams to take on emerging areas of law. For example, in the context of expanding into an emerging area of law with existing teams, inefficient legal research poses significant challenges. Lawyers may struggle to stay abreast of developments, understand complex issues, or provide high-quality advice, leading to strained resources, increased workloads, burnout, and errors in legal analysis and strategy.

These hidden costs eat away at the firm's billable hours by reducing efficiency and productivity. Inefficient research lowers the firm's operational ceiling, limiting its ability to capitalize on economies of scale and expansion opportunities.

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