March 4, 2024

Law Firm Forecasting: Contingent Fee Billing

Contingent fee attorneys often feel like law firm forecasting is out of reach. There are so many question marks: How much are their cases worth? How much money is coming in this month – and how much needs to be coming in?

Contingent firms face unique challenges. They often don’t know the value of the universe of their cases. Because they can’t forecast cash, they have to finance their own cases. That leads them to either leave income behind, put their own money in, or resort to bank debt. And they don’t know how much cash their firm needs to finance their caseload and their overhead.

But the information they need to be able to answer these questions is closer than they think: in their case management system (CMS).

This is not back-of-the-napkin math, but it is possible to create a dynamic forecast once you define the type of case and milestones within each type.

A type of case might include personal injury, toxic exposure, malpractice, etc. This allows us to define milestones within each type of case, standardizing them. So, we’re focused not only on the milestones within each case, but the milestone timeframes and the expected case cost based on the type of case.

Milestones might look like this (with an estimated timeframe for each)

  • Client inquiry (source of lead?)
  • Intake process
  • Investigation period 
  • Filing
  • Discovery period + experts 
  • Establishment of trial date (or settlement)

Then we need to know the expected firm fee, for example, if a case is worth a million dollars, the firm fee is 40% or $400,000. Here we would also include a field for probability of success, which would typically be pretty high (because we’re not taking cases we don’t expect to win). By tracking this metric, you can see if you need to reconsider how you select cases to begin with.

We also need to know a referral source: If it came from advertising or from a non-attorney, it means we don’t owe a fee split (and as a bonus, we can see how effective our marketing is). If it did come from a referring attorney, we need to indicate how much we owe as a fee split. 

Finally, we need to track expected case cost. 

This information in the CMS allows you to generate a report with all this data. Once the data for existing cases is complete and accurate and the report is designed, the heavy lifting is done. Then the report can be generated on a regular basis, and it won’t take more than 15 minutes to update with new information as the case moves through the milestones.

This setup provides a lot of key information at a glance: the value of the current universe of cases, the source of cases and the effectiveness of your referral network and/or advertising. You also can predict expected case cost by case type, which will help predict cash flow and the preparation of a dynamic forecast.

Interested in learning more about law firm billing and law firm forecasting best practices? Read our book that covers this and everything you need to know about financial best practices as a law firm by clicking the button below.

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