Reaching Your Revenue Goals: Reverse Engineering the Plan

There is one goal that matters more than anything else to you, and you should absolutely know what that is. You should get really clear about what it needs to be. Then you can work backwards from it to see what conditions have to exist for that goal to be a reality. And I'll model that work today. 

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If you've set a revenue goal for your firm, but you're not totally sure how you're actually going to hit it, this episode is for you, because a revenue goal on its own is really just a number on a page or a number in your head. What makes it real is everything underneath it: the smaller goals that when you hit them, make the revenue almost a foregone conclusion. So today, I'm going to walk you through how to build those, how to take the big number you want and break it into the pieces that actually get you there. 

When we set goals, we use data to set goals. And when I say use data, we don't just look at last year and use the data and decide to add 20% to the top. You can do that for a goal. That's fine. But in this episode is not about how to set a revenue goal. When I say revenue goal, like the mother goal, the top line goal. And it doesn't mean it's the most important. I will get into that in a minute, but that's what I'm talking about. It's like how to use it, the mother goal, to set goals underneath that, the sub goals. 

If those goals are hit, then the revenue is inevitable. So I'm going to reverse engineer this with you to get some really solid goals into place that lead you to the revenue goal you want to see. So, have your one goal at the top, right? Whatever that mother goal. Then you'll have sub-goals that when we reverse-engineered, it's the math that gets you to the revenue goal. And then, you'll have strategic priorities, which is the effort that we put forth, the levers that you're going to pull in order to achieve the goals, especially the sub goals, because that, achieving the sub goals is going to give you the revenue goal. 

Okay, so people get their, they decide what their big goal is. But I do want to say something about the type of goal that you choose that is your mother goal. I know that seems like funny language, but just roll with me here. There is one goal that matters more than anything else to you, and you should absolutely know what that is. You should get really clear about what it needs to be. Then you can work backwards from it to see what conditions have to exist for that goal to be a reality. And I'll model that work today. 

For most of my clients, that mother goal that informs what needs to happen in the firm is a revenue goal. That is true 98% of the time, and it's what I'm going to use in this episode. Every now and then, it makes sense to start somewhere else. So you do you. Use whatever matters most to you as your starting point.  

Let's say your mother goal this year is a profit margin goal. Great. You still need a revenue target because for your profit to land where you want it, your revenue has to land somewhere specific as well. And if that's true, then you do have to reverse engineer from the revenue goal. It just wouldn't be your most important goal, but it's a starting place to be able to determine what needs to happen. 

And I'll say this, with every single client, profit margin is always part of the conversation, always. I have levels in mind I want clients to get to because they deserve to have that kind of margin. And that's a focus over time. I've actually done a podcast even this year where I talk about profit margin and ideal ranges and how I think about that and where I try to get people. But we never take our eye off of revenue because revenue has to grow in order for your profit to grow. It's not the only thing that matters in order for your profit to grow, but it is one of them. And you may decide to get leaner on the inside, which helps your margin too. But with revenue, there's something specific that does need to happen. 

So, I am going to use revenue as the mother goal here in this episode. And I don't want it to sound like that's the most important thing in your business. It's just the top-line goal. It's the number we know we want to see, and it's generally the right thing to work backwards from to figure out what needs to happen in the firm and where your focus needs to be. What feels important today is to help people understand how to get to the sub-goals. 

All right, there are a few pieces of data that are required for really good planning. One of them is average revenue per case or per matter. I have done podcasts on average revenue per case or per matter, and I highly recommend you go back to listen to those if you want to. If you want to dig into that a little bit more, I have broken down flat fee versus contingency fee versus hourly and how to think about that. And if you can't get the data to do with specificity what I say on that, I also give a generic equation that you can use.

And so I have done an episode on that. We will link to it in the show notes, but here, what I want to say is that average revenue is important. If you know your average revenue per matter, and we'll talk about practice area breakdown in just a minute, that is your fulcrum for planning. If you don't have it, your planning is more flat. It's less stable and it's less reliable. Average revenue matters. 

Now, if you do have practice areas, it's important to get your average revenue, to know your average revenue per case or per matter in each practice area, and or for each matter type that you care about. So maybe you don't know it for, which if you do, that's fantastic, but maybe you don't know it for every single matter type, but there are a couple that carry the most weight in your practice. 

I'm going to give you an example. Criminal defense firms, they break it down by matter types. Their practice area is criminal law, but they have felonies, they have DUIs, they have traffic tickets, et cetera, et cetera. My clients know their average revenue for each one of those case types. They know what average revenue is for a felony case. They know what average revenue is for a DUI. They know what the average revenue is for a traffic ticket, et cetera, et cetera. There's other things that they deal with. So that is important. They know that. And it's because they know the amount of revenue that's come in for that case type, and they know the number of cases that contributed to that revenue.

So this is an important number because with that number, you can do certain calculations that without it, you just can't. Okay, so that's the first thing is average revenue per case or per matter or per case or matter type. You have to determine what is important for your firm. 

What are the numbers that matter the most? What are the heavy hitters in terms of revenue streams? That's another way I like to think about it. It's like, what are the revenue streams that come into your business? And you need to figure out the average revenue per matter within that stream. 

Now, I will say, there's some other transactional lawyers that work with closing deals and have clients that hire them repeatedly to handle matters, and you can look at average revenue per client. I actually think that'd be a really fascinating thing to look at and to use that so that you know if you're going to go out and get an X number of clients, what that probably means for your business, because you would have an average revenue per client. I think that's fantastic. But I also think that does not mean that you don't have to look at average revenue per matter.

So even if you're handling some transactions that some of them are thirty thousand dollars and some of them are five thousand dollars, you still want an average because it's a fulcrum with your planning. So, within that one matter type, even though it spans so greatly, you still want an average. 

Now, if there's an outlier, and this is just for anyone, not just transactional lawyers, PI, et cetera, et cetera. If there's an outlier with a certain matter case that came in that was high in value, and that's not normal for your firm, kick it out. You don't need to use it because it's not really helpful for planning. Unless, unless you can bank on getting one or two of those a year, then you can leave it in if that's generally how that goes.

But if it's not normal for you, just kick it out so that the numbers are more real and more conservative and not bloating out and making you think that you need less to make more when that's not going to be the case moving forward. So outliers, kick out. But even if you have a matter type that spans the spectrum, you're on both ends of the spectrum in terms of value for that matter type, you know, really high value and then some really low value, still use the average. 

Okay, so that's the average revenue. You need to know average revenue per case or matter or practice area. But you have to know the nuts and bolts of your business and what is coming in. If you were to make a list of the revenue streams, that's a way to think about it. Or the matter types that come in, the main ones, then make a list of those and find a way to calculate average revenue for each of those.

And if you don't have the right data to do it, then just do it firm-wide for the whole firm. Revenue divided by number of cases. And you can use the calculations I provided in the podcast before, but you can find the average revenue for the whole firm. And, you know, you'd probably want to look at driving that up if you can. So that's something we could talk about on a podcast in the future. But having that number is still important. It is a fulcrum for your equations for planning. 

Okay, the second thing that we use when you think about planning and projections is percentage of revenue that each matter type or practice area contributes to the overall revenue. So if you can imagine, you know, I just I said make a list of those revenue streams. The different matter types or practice areas that are really bringing in the revenue, then next to each one of those, you should be able to put what percentage of the total revenue it contributed.

So let's say there's one hundred thousand dollars of total firm revenue and twenty-five thousand dollars came from DUIs. Okay, that is 25% contributing 25% to the overall revenue. And you go down the list of your revenue streams or your matter types that you really want to look at to see what it's contributing or your case types or your practice areas, whatever makes sense in your world. But you should know the percentage of revenue that it contributes. 

Now, I always have clients look at, okay, that is the current percentage of revenue that it's contributing. What is my target? There are some times that there's certain matter types or case types or practice areas that are easier, they're higher value. So they might take less time in your firm and their value is higher. You probably want more of those. So if you currently have a matter type or case type that's easier and breezier for the firm and the value is really great, essentially the margin on that case type or matter type is really great and healthy for the business. And let's say right now it's about 30% of overall revenue of the firm, but you want to raise that. You want it to be more than 30% of the overall revenue.

So if you want to affect that number to go up, so let's say you want it to be 40% of the revenue of the firm, not just 30, because everybody wins. The margin is really great on that specific matter type or case type, then you can put that target percentage that you want it to be 40%. And you can do that for each of your practice areas that you actually want to see adjusted for. You don't have to do it for every single practice area. You need to do it for the ones that you want to affect. 

Sometimes you will want them to go down, not up in percentage, because it's too much work for not it's it's not worth what you are getting in terms of revenue, in terms of work, which, you know, there's things to look at there and maybe you want to fix that and maybe you want to get your hands around that. But truthfully, if you're not interested in getting more of those cases, then you may decide that if it's, for example, sitting at 30% and you don't want as many of them, then maybe you want to knock it down to 20% or 15%.

And you can do things deliberately to line yourself up with giving more room for other cases and decreasing the amount of those cases. So it's something to think about. It's important to know your current percentage of revenue that each case type or matter type is bringing in, what it's contributing, and what is the target for you if in fact you do have a target for one or more of them. 

Now, when you have an overall revenue goal for the firm, you can take that revenue goal times the percentages that you wrote down and it'll tell you how much revenue you need to do for each of those practice areas or how much the practice areas need to do in terms of revenue or maybe it's by case type or by matter type.

So let's just run through an example here. For the sake of simplicity, I'm going to call each thing that we're breaking down when we're talking more about what is contributing to the overall revenue, I'm going to call that matter type. It may be case type for your firm. It might be practice area for your firm, but this revenue stream, I'm going to call it matter type in this example.

In this example, I'm going to have three different matter types that we are going to look at in terms of percentage of revenue that it's contributing. And then there's a miscellaneous bucket that I'll chat about as well. Bucket is also a decent word. So you could think of these as, I said revenue streams, I've said practice areas, matter types, case types, these are also buckets of the business. That's another way you can think about it in terms of revenue. 

So, matter type one, let's say the target percentage is 40% of the overall revenue. That and again, maybe because it was 30% and you have a target for 40%, but you make a decision about where you want it to be. So 40% of the overall revenue, good to know.

Matter type two, you've determined that the target for matter type two is to contribute 30% to the overall revenue. Matter type three, you've determined you want to be 20% of the overall revenue. And then there's some miscellaneous stuff that comes in that we don't really need to measure what's going on with that, but this is going to be a piece of the pie, right? So we decide or we look at, okay, miscellaneous will be about X amount, X percentage of revenue. 

So now, when we put this into real numbers and real revenue goals, let's run through that. Let's say the firm's goal is a million dollars. If the goal for the firm is 1 million and you want matter type one to contribute 40% of that revenue, that means that the revenue goal for matter type one is four hundred thousand dollars. You with me?

Now, for matter type two, you said you wanted matter type two to contribute 30% of the overall revenue of the firm. So that means it's three hundred thousand dollars. That's the revenue goal for matter type two. The revenue goal for matter type three is two hundred thousand dollars because you stated you wanted it to contribute 20% towards that overall revenue goal.

So we have 40% for matter type one, 30% for matter type two, 20% for matter type three. Those are your target percentages. Then you take the overall firm goal, which you have set. I've done a podcast on how to set those goals. You've taken the overall firm goal and you multiply it by 0.4 to get the revenue goal for matter type one, by 0.3 for matter type two, and by 0.2 for matter type three. So this is how you determine how much revenue each matter type should bring in if you are working towards hitting these goals in this way. 

And this is important because now, not only do you have a firm revenue goal, you have it broken down in a very smart way, working backwards to the revenue goals for each matter type. And here's the thing. At the beginning of this already, we talked about average revenue per matter type. So you already have that.

And let's just say in this example that matter type one, the average revenue is five thousand dollars per matter for matter type one. Okay, well, we said that we wanted it to contribute 40% to the overall goal of a million dollars. We know now that's four hundred thousand dollars is the revenue goal for that, and we know the average revenue for that matter type is five thousand dollars. So that means you need 80 matters through the door in order for that revenue goal to be hit for that matter type, because I'm taking four hundred thousand dollars divided by five thousand dollars average revenue, and it's 80. 

So by knowing your target percentages, it allows you to calculate a revenue goal for that matter type. And then knowing your average revenue per matter for that matter type allows you to figure out how many cases you need through the door in order to hit your revenue goal for that matter type. Do you see what I'm saying? This is so powerful. 

So if you know that the revenue that each practice area or matter type is supposed to do and you also know the average revenue, there you have so much more visibility and ability to plan in a smart way moving forward. That is based on real numbers. And it's not based on what you just like to hit, like what the goal that you want to hit.

I guess what I'm saying about this is people will set a big goal and they just run their way at it. They do their best. They hustle to get it done, and there's no strategy to get there. So you can set goals based on just what you'd like to hit. I'm not discouraging you from that, but it doesn't mean you don't need to know this information. If you want to do this in as smart a way as possible and as strategically as possible, you need to know this information, or else you'll be at a disadvantage for your firm. This really is important. 

I used to try to do this in my groups that I led, and it was fairly successful. When we ran our membership programs, our group programs, and every quarter, I led a virtual room of law firm owners through strategic planning. But I couldn't get as deep with any one person. That's one of the main benefits and one of the main reasons we narrowed the type of work we do to private only because we can go deep with them. We've got them. And in a group, I just don't have that same ability. I could see people remaining stuck in ways that if we could just get in there and work with them, it would change a lot.

So, you know, working privately with law firm owners and their firms means every single client who works with us gets the benefit of us really staying with them because we're in it with them, figuring it out all the way till the end.

So that's what I want this episode to serve as. This is a way to bring all of the information, all the data together for yourself in a way that allows you to plan in a smart, strategic way. I'm hoping this is helpful. And I realize, without me guiding you through this on paper or on a whiteboard, this may be tough to wrap your heads around, but I thought I'd give it a shot. Everyone should understand this for themselves. It gives you leverage.

So I hope that what I've shared today between the average revenue per matter or matter type, case type, practice area, whatever, plus understanding the target percentage of revenue for each one, for what it's going to contribute to the overall revenue. Those two things will help you immensely when you are trying to figure out what in the heck you should bring through the door, how much of it, what should you expect from that in a granular way that's doable to get. All of this data is doable to get. It may take you more work on the front end if you've never done this before, but God, it's so worth it. 

You have an awareness and clarity as a business owner that 90% of law firm owners, maybe more, they don't have. And it's not because people are idiots. It's because no one is really talking about this and sinking their teeth into it. And if it's not your game, if you don't really understand that this is something that should be looked at, then of course you're going to be missing some information.

So I'm hoping that I can bridge the gap for any of you who are listening. I want to increase the percentage of law firm owners that use this information. I want to increase the percentage of law firm owners that understand the importance of these numbers and how they can be a fulcrum inside of your business planning. 

One more thing before I wrap. I've been showing you how to work backwards in this episode. That's what we've been talking about. It's how to work backwards from a revenue goal. But there are times with clients where I do the opposite. I build up instead of reverse engineering if the firm's current circumstances call for that.

Here is an example. When I'm working with a firm and they are on an hourly fee structure and a lot of the time they're not hitting the revenue that they should be, whether that's because no one ever set the expectation for how many hours a day or a week or a month that each producer should be billing or maybe the expectations were set, but there's no real accountability and it's just not happening.

So then you find all of these inefficiencies and people doing non-billable work more than billable work. And there's usually reasons for that. And those reasons tend to surface during our work with a client. So it'll be a priority to deal with some of those barriers that they are experiencing for people to be able to bill what they should be billing. In a case like that, the move isn't to start from a revenue number and work backwards. It's to get the billable hours to where they should be first, and then ask what that means for your revenue if they were to hit the targets.

And when I say targets, I don't mean aspirational goals. There is a floor people should have. If you do any hourly billing and we this is like a whole other podcast episode, there is a standard that needs to be in your firm in terms of the number of billable hours. Now, if they go above and beyond that and you want to incentivize that, I think that's fantastic, but there is a floor, right?

So you set the revenue goal based on that happening. You build up to it instead of working backwards from something. Because when you're working backwards from something, and this is all broken over here, it just doesn't make sense. So if there's something here that's not quite right and we need to get it right, that's the first step. And so in that case, we will look at, okay, based on these producers with this amount of hours, this is what it should be.

So it's the same idea, connecting the data to the goal, it's just running the other direction. I'm sharing that sometimes I work up instead of backwards in certain instances, because if I ever do work with any of you and I stack it that way, there's a real reason I would stack it that way. If we don't ever work together, but you are hourly, this can be a way that you can approach it if, in fact, there needs to be some cleanup and some tightening up.

So whether you reverse engineer from a revenue goal or you build up to one, you're doing the same thing. You're using real numbers. And I want you to use, you know, going back to the real main purpose of this is reverse engineering. I want you to use your average revenue and your target percentages to plan in a smart, grounded way instead of just hoping. So hopefully, that's what we've accomplished here today on this podcast. 

And if we've lost you, please go back. Listen a second time. You could plug in your own numbers as we go along. Like, push pause as I talk about each thing. Push pause, get your numbers, write them down, and then listen again, and then push pause, write your numbers down, et cetera. And, you know, listen, if this feels like too steep a hill to climb, I get it. I get it.

Even if you sat down and did the work, pushing pause, writing your numbers down, going through all of it, it can take a long time, and you might go down a few rabbit holes you really don't have time to go down. I'm not saying that because it's not important. They are rabbit holes that should be gone down, but, you know, if you really don't feel like you have the bandwidth for that and you recognize the importance and you'd rather have a running buddy with this stuff, a partner who's really connected to you and to your firm, then reach out because this is the work we do.

I want to give this information away on the podcast, but you don't have to do it alone. Thank you so much for tuning in this week and spending time here with me on The Velocity Work Podcast. I will see you here next Tuesday.

Hey, want to watch the video of this episode? Head over to Velocity Work’s YouTube channel. You’ll find the link in the show notes.

And we give away some pretty great free resources that help law firm owners who aren’t clients learn some of the core principles that we use in our framework. An example is a Producer Calculator, which lets you put in your producer salary and production numbers to give you a sense for how healthy your firm is and how your team is performing. Head over to velocitywork.com to try it out.

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Thank you for listening to The Law Firm Owner Podcast. If you're ready to get clearer on your vision, data, and mindset, then head over to VelocityWork.com where you can plug in to quarterly Strategic Planning, with accountability and coaching in between. This is the work that creates Velocity.