12 Expense Reduction Strategies Your Firm Can Implement Now

16
Sep
2013

Rob Mattern

With a flat revenue projection and expenses as a percentage of revenue on the rise, many firms will have no choice but to further reduce their expenses. Are there alternatives to cutting headcount and avoid the unfortunate layoffs that are occurring? Yes.  Here are 12 tested and true concrete strategies your firm can implement and start saving now. 

Number 1.  A CFO Mind Bender: When does 10% equal 333%?   

Would you and your firm consider a project a success if you were able to lower your costs 10% without impacting your services? Most firms would say yes. Well, how about impacting the bottom line in a positive way by 333%?

Chances are if you achieved this level of impact, your firm would name a conference room after you, give you a plaque or make you a partner. 

This impact is certainly achievable and within reach; the secret is focusing on shifting non-billable expenses to reimbursable expenses.  See below: 

As the table illustrates, a 10% reduction in costs on an item that has a 70% billable percentage will impact the bottom line by 3% (Column C $7,500/$225,000). However, as you can see in Column D, a 10% increase in the billable percentage without a cost reduction will impact the bottom line by 10%--a 333% increase versus the reduction in costs. 

Why don't more firms attack this opportunity? Most firms are narrowly focused on expense reduction not reimbursement of costs; this myopia is compounded by lack of expertise in this area as well as an incorrect assumption that clients will not pay for these charges.  

Number 2. Structure Your Support Services Appropriately  

Now more than ever your firm needs to examine the delivery of services to its end users.  Not only does this have to be more cost-effective, but it should also account for the cost recovery aspect of the services. 

Many firms structure their operations to be all things for all people. With the shift from copy to print, the increasing pushback on soft cost recoveries and the willingness of clients to pay for hard costs, it may be in your firm's best interest to question the reasons for having a full-scale support services center on site operating for extended hours.  Based upon your operational and cost recovery data, it may be feasible to shift those volumes to an overflow vendor, actually collect more dollars and decrease your fixed costs.

Number 3. Consolidate Contracts

In the era of law firm mergers, contract consolidation is a powerful strategy.  There is no reason why a single national vendor cannot address 99% of all your locations while preserving autonomy of individual offices. Does this consolidation produce savings?  Absolutely. Based on our firm's 2013 Outsourcing Survey, the average savings on consolidation produces savings of 22% with incentives equal to 138 percent of your monthly expense.       

Number 4. Just Say No to Non-Competitive Renewals  

Engagement after engagement serves as an illustration that your firm can increase savings by up to 50% if you put your current spend into a competitive situation. This is not to ignore the substantial improvement in your terms and conditions your firm can also expect through testing the market.    

Number 5. Consider Alternative Contract Structures  

Over 90% of all outsourcing contracts have the equipment included.  If your firm is large enough, it may make sense to procure these services separately.  

Based on some of our engagements where we completed a separate request for proposal for equipment, the savings alone on the equipment was 48%.  There are substantial economies of scale that can be achieved by looking at your printers and multi-functional devices together when considering configurations.       

Numbers 6-10. Contract Terms That Will Cost or Save You

Outsourcing Contracts: 

• Flexibility.  Will save you.  Each and every contract you sign should have some component of flexibility to modify volumes, service levels and spend commitments.  For equipment and outsourcing contracts, this should include the ability to add, delete or modify equipment configurations without lease buyouts, penalties or termination fees.
• Lack of financial exposure.  Will save you.  Many firms execute agreements that include assumption of all obligations under a contract in the event of cancellation. However, if you are cancelling for poor performance or breach, your firm should not be liable for these obligations.
• Non-solicitation fees or severance.  Will cost you.  Chances are you have language in your outsourcing agreements which address the labor contained under its umbrella. Non-solicitation fees are fees that clients pay to the outsourcing vendor in cases where they hire the vendors' employees or if a third party (i.e. another vendor) hires them.  The argument is that the outsourcing company incurred “costs” to hire, train and manage these employees and should, therefore, be compensated if the employees are hired away from them.  With the same logic and reasoning, some vendors are requesting severance pay for their employees if the client terminates their contract (which in many cases are richer than the ones you give your own employees).  
• Off-site Records Storage Contracts. Permanent Withdrawal Fees will cost you.  Why do you pay permanent withdrawal fees on any new boxes you are sending offsite when the offsite vendor is already "protected" by the boxes they currently have in storage? When re-negotiating your new contract, say no to any additional permanent withdrawal fees.
• Equipment Contracts. Maintenance terms can save you money.  If your service/maintenance contract has a minimum amount of impressions included and you fail to reach this minimum, shouldn't you get a credit for these unmade impressions?  (Yes, and firms do.)

Number 11. Paying Consultants Based on "Savings"

File this under 'don't.'  This business model does not necessarily incentivize the firm's best interest overall.  The consultant may offer the least expensive solutions, but these may not be the best options from a strategic point of view.

Structure contracts with consultants based on a fixed fee to take self-interest off the table. If you would like to offer a bonus if their firm is able to exceed a certain savings level that you agree to, that is fine--but know what you will pay before you begin any engagement.   

Number 12. Monitor for Contract Compliance and See Savings of 2-5% 

Negotiating a great contract is one thing, managing it once it is in place is another. 

When was the last time you reconciled your outsourcing, equipment, offsite records or office supplies invoices to your contract? I think you would be surprised at what you would find. Typically when we monitor a contract for our clients we find numerous errors in the application of terms (flexibility, annual escalations, etc.) and on average billing errors equating to 2 to 5% of the annual contract amount.