The 2021 budget season is here – what are smaller firms doing?

As 2021 draws near, law firm administrators and managing partners are faced with an annual task that many dread, but all generally agree must be done. Or, do they?  The 2019 American Bar Association Tech Report provides useful insights into how firms approach budgeting in the technology area. 

The report is especially useful for an insight into law firms of fewer than 10 attorneys and solo practitioners. Noting that firms of this size make up the majority of the legal profession, it provides benchmarks and ideas for those facing the decision of how much to budget for technology.

Although over 60% of all respondents reported they did budget for technology, only 50% of firms with 2-9 attorneys, and 39% of sole practitioners, reported doing so. If your small or solo firm is in the majority of those not budgeting for technology, here are some benchmarks and ideas to get you started and avoid or anticipate unpleasant financial surprises in 2021. After all, you are spending the money anyway, so why not add it to your budget with a few simple line items that you can begin tracking?

Spending 

• Small and solo firms generally spend between $1,000 and $7,000 per year for the software required for the firm (practice management, document management, and time tracking and billing software), with the median being $4,000. 

• The firms plan to spend between $1,000 and $10,000 annually for hardware; upgrading hardware was the most popular single technology project reported in the survey.

Training 

As one would expect, there is limited training available at small and solo firms, with only 50% and 30%, respectively, reporting that they budgeted for training. Conversely, 81% and 72%, respectively, said that training is important and necessary.

Budgeting

Benchmarks of law firm spending on technology range from 2-3% of revenue for established firms and up to 4-5% of revenue for fast-growing firms. These very general benchmarks seem to be confirmed by the ABA Tech Report.

• Software. Cloud based law firm management software is available priced on a per user basis, making this part of the budget fairly simple to compute. 

• Hardware. This is a more difficult question. Each firm must determine where they are in the hardware spectrum – such as if they just replaced all their essential equipment, or are working with older and unsupported equipment. The ABA Tech Report found that the desktop computer using Windows 10 was the most popular hardware choice among small firms and solo practitioners. The good news is that powerful desktop units are widely available for under $1,500. This standard technology is easily combined with a cloud-based law firm management software to keep the capital investment manageable.

• Training. The ABA Tech report shows that 60% of respondents are “comfortable” with their firm’s technology. When looking for training and support, the main sources are consultants ($60-90/hour), Google (free), and vendor/supplier support (often included with the product).

Cloud-based law firm management software responds to many of the needs suggested by the above discussion.

• Predictable costs
• Affordable, using commercially available technology
• Broad range of features, continuously updated
• Secure 
• Supported

If you are considering an upgrade of your law firm’s technology platform, Smokeball has published a detailed guide to implementing legal practice software. 

If you desire additional information or would like to have a discussion about your practice and our potential to partner with you, please ask your firm administrator to contact us.