The 4 Essential Parts of Your Monthly Revenue Goal
If you don’t want your law practice to fail, you need to know your numbers. You need accurate performance goals when it comes to how much gross revenue firm needs to generate every month. If you don’t know that number, or the number you have is unrealistic, you will not succeed.
Many attorneys believe that their monthly revenue goal is the same as their monthly nut. In other words, it is the amount of money they need to keep the doors open. However, that goal is much more than that. It is made up of these four essential parts, and you need to give careful thought to each one of them if you want to succeed.
Monthly Overhead
Yes, the monthly nut does factor into all of this. If you don’t generate enough revenue to cover your expenses, you will not be in business for very long. You need to go through all of your records to identify each and every expense that you pay either every month, every quarter, or once a year. Naturally, the last two would be expressed as a monthly average.
But that is just a first step and the first number you need to determine. The other three become less and less obvious until you think about them.
Paying Yourself
Your practice exists to make money for you, right? So what good would it do if every month you only made enough money to pay the rent, insurance, your employees, and the like? You need to be able to pay yourself. This is your monthly draw.
It isn’t whatever comes in over and above your expenses; it needs to be a specific amount. In calculating it, be sure that that number, whatever it is you need to meet your personal living expenses, includes enough money for estimated tax payments to state and federal authorities. You don’t want to have a tax problem at the end of the year.
You should also be sure that that amount makes for a comfortable living for you and your family, and is not the minimal amount you need to scratch by. Otherwise, you might as well be working for someone else.
Investing In Your Firm
Your monthly revenue goal should also include money to reinvest in your business for growth and improvement. How much that is is it going to depend on what kind of growth you want for yourself and what your goals are for your firm.
These plans may include unplanned opportunities that may come along and would benefit your firm, new and innovative marketing initiatives, new equipment and technology, or upgraded furniture. You may also want money set aside to get you over the initial expenses of hiring and onboarding a new associate to take on the additional work as your firm grows.
For whatever strategic plans and opportunities you may have for your firm, you will want enough money to pay for them. Determine what you will need for the year, then divide by 12.
Weathering the Low Points
If you’ve been in practice long enough, you know that they are going to be good times and bad. There may be even predictable, recurring slow periods during the year.
For example, in my practice, the months of December through February are traditionally slow. So the fourth important part of your monthly revenue goal should be funds to carry you through the slow times. This will even out your revenue and make things less stressful.
Teachers do this all the time. Many school districts will pay their teachers from September through June, leaving them without a paycheck for July in August. Naturally these people need to budget that income over 12 months, instead of 10. They are setting aside of certain amount of money every month to pay the bills in July and August. You need to do the same.
Always Overreach Your Goals
Attorney and business coach Dave Frees advocates a goal formula that states: I want to achieve X or more by Y or sooner. This trains your brain to push further than your goals after you’ve met them. So even after you determine what your four-point monthly revenue goal is, when expressed as an annual amount, you should always strive to exceed your own goals. If you want to generate $X in revenue, why not $Y more?
Thinking in this way, you will reduce the financial stress in your practice because you will know that as long as you meet that monthly revenue goal you’re in good shape. And if you happen to make even more money than that? Well, even better.
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