How to reduce costs in a professional services firm

Key takeaways

To reduce costs in a professional services firm, look at how fee earners spend their time before looking at the overhead budget. The largest cost in most practices is chargeable people doing non-chargeable work. In our example, moving five hours a week of admin off each of six fee earners is worth about £207,000 a year at their charge-out rate.

• The biggest cost is fee earners doing non-chargeable work.
• 5 hours a week each across 6 fee earners is about £207,000 a year.
• Delegate preparation, keep judgement and sign-off.
• Check your regulator's outsourcing rules before moving client data.

Where do costs sit in a professional firm?

Costs in a professional firm sit overwhelmingly in salaries, followed by premises, professional indemnity insurance, software and compliance. Because people are the product, the usual levers of cost reduction look blunt. The useful question is not how many people the firm employs but what each expensive hour is spent on.

• How BPO can help businesses reduce operational costs
• What are operational costs? A plain guide for UK owners
• Non-billable hours: how many is too many?

What does fee-earner admin cost?

Take an illustrative practice with six fee earners charged at £150 an hour. A time log shows each spends about five hours a week on scheduling, document chasing, formatting, billing and file administration. Over a 46-week working year that is 1,380 hours.

At the charge-out rate, those hours are worth £207,000 if they could be billed. Even if only half could be, the figure is over £100,000. Handing the same 30 hours a week to a managed team at an indicative £12 an hour costs about £18,700 a year.

• Admin time: 5 hours a week per fee earner.
• Total: 1,380 hours a year across six people.
• Value at £150 an hour: £207,000.
• Managed team for the same hours: about £18,700.

• How to measure productivity in a small business
• The cost lever scorecard: find savings process by process

What can be delegated safely?

Preparation can be delegated. Judgement cannot. The line is whether a task needs professional opinion or only care and accuracy.

• Diary management and client scheduling.
• Document collection and chasing.
• Data entry, bookkeeping preparation and reconciliations.
• First drafts of standard letters from templates.
• Time recording, billing preparation and credit control.
• File opening, closing and archiving.

• Outsourcing for professional services firms
• How to reduce back-office costs in a UK small business
• How to reduce debtor days and the cost of waiting for cash

What do regulators expect?

Regulated firms remain responsible for work they outsource and for client confidentiality. Solicitors, accountants and financial advisers each have rules or guidance on outsourcing from their regulator or professional body. Under UK GDPR, a written contract with any processor is required, and transfers outside the UK need an appropriate safeguard. Check your own body's requirements first.

• GDPR and offshore outsourcing
• Quality assurance for outsourced teams

Which other costs are worth a look?

After fee-earner time, look at the processes that touch every matter or client: onboarding, billing and month end. Each tends to have steps added over years. Software is worth a review too, as practices often pay for overlapping tools.

• Month-end close: how to finish faster with less effort
• The eight wastes of lean in an office, and how to cut them
• The cost of complexity: when variety eats your margin

What should not be cut?

Do not cut training, supervision of junior staff or client contact. These are what the firm sells in future years. Be careful with support staff too. Removing a good practice administrator usually pushes their work onto fee earners, which is the most expensive place for it.

• Cost-cutting mistakes that end up costing a business more
• False economy in business: when the cheap option costs more

What does this look like in practice?

A pattern we see in small practices: partners record long weeks and modest billable hours, and assume the answer is another fee earner. A time log shows a day a week each going on tasks that need no qualification. Releasing that time adds capacity equivalent to a new hire, without the salary.

• See client work
• BPO Solutions for UK businesses

Professional firm cost checklist

Work through these with your partners.

• Log fee-earner time for two weeks by task type.
• Calculate billable share per person.
• List admin tasks that need no professional judgement.
• Check your regulator's outsourcing guidance.
• Document one process end to end.
• Pilot delegation with one team.
• Measure billable hours before and after.

• Run an outsourcing pilot before you commit
• Operational cost reduction checklist: 20 checks

Next step

Tell us how many fee earners you have, your typical rate and roughly how much of their week is non-chargeable. We will show you what that time is worth and which tasks could safely move.