In all the jobs I’ve held as CEO, nothing is more challenging than properly staffing a firm.  In a “normal” law firm, the economics are pretty simple:  an attorney bills his clients for the hours worked and 30 to 45 days later the invoice is paid.  The revenue is realized virtually immediately.  However, in a collection firm, spending today’s profits with the expectation of greater profits in the future is customary.  And when the requirement of meeting clients’ needs and expectations is added to the mix, the difficulty becomes clear.

 

Determining when to add the next non-revenue producing employee is the biggest battle my partners and I fight.  In a “normal” firm, the definition of a non-revenue producing employee may even include a retail collection attorney.  But that’s not true in the case of a firm of debt collection attorneys.  The challenge here is to add more revenue-producing employees in the form of collectors to support all the non-revenue producing staff and collection attorneys. 

 

To determine the need, we measure workload as well as revenue per full time equivalent (FTE).  It is critical to maintain the correct level of revenue per FTE.  In calculating proper staffing levels, we rely on input from department managers as well on the organizational work chart itself for clues.  Every new non-revenue producing employee must have a defined purpose and an expressed need before a decision is made to hire.  I will always challenge my managers to clearly explain why a new staff person is essential and how the firm will ultimately increase its revenue with the additional payroll expense.  Without a valid answer to these questions, profits will suffer.  Expressed as a formula, success is determined by the result of dividing our total payroll expense by total revenue.  Ideally, a maximum of 50% is acceptable.  If that number exceeds 50%, return per FTE is not maximized.  Numbers lower than 50% indicate a higher return.  We consider all such benchmarks before making a decision to hire.

 

An easier analysis consists of evaluating the additional staffing costs of revenue-producing employees.  This is not an exact science.  It combines past performance and current workflow.  In the current environment of increasing claims and decreasing revenues per collector, revenue-producing employees are required to handle a greater workload for the same revenue. 

 

While that may be logical in theory, as a practical matter the law of diminishing returns must be considered.  In other words, when does the workload become unreasonably heavy?  Recently we experienced a decrease in revenue as a result of too heavy of a workload.  Revenue producers will never realize maximum performance by being reactive nor will client performance goals be maintained.  Without both, a collection firm is destined for failure. 

 

We base the decision to hire the next revenue-producing employee on the volume of new business gained by the firm.  For example, if we forecast an additional 500 new files per month over the previous month’s average, we must hire additional staff to service the work.  The expectation is that revenue will be fully realized after 90 days.  Therefore, the decision to add more work is ultimately a decision to forgo current profit by reinvesting revenue in the firm with the expectation of higher future profits.  This practice is successful, however, only if established standards of performance are followed.  If those goals aren’t achieved, the decision to let go of non-performers must be made. 

 

Recruiting capable new hires must continue in order to increase productivity.   That is easier said than done, however.  For us, success is ultimately measured by taking the total of all revenue producer’s salaries and bonuses and dividing that number by the total revenue achieved by the department as a whole.  If the result is less than 30%, the department is profitable.  And numbers below 30% reflect more being added to the bottom line.  But profitability must never be sacrificed at the expense of client service goals.

 

While every firm has a unique way of setting up the organization chart, one must always look to the bottom line when staffing.  All the revenue in the world will not matter if profits suffer.  After 12 years of performing this exercise, I realize it is a journey and not a destination.

 

 

 

 

Todd L. Gurstel is the founding partner of Gurstel, Staloch & Chargo, P.A.  He is certified by the State of Minnesota and the American Board of Certification as a specialist in creditors’ rights law.  Mr. Gurstel was thrilled at the opportunity to evaluate and collaborate on effectively staffing a collection law firm to engage in self-evaluation and the ability to help others through the challenges.  Todd has served major Minnesota businesses, as well as many of the country's leading lenders, for over twenty years. Martindale-Hubbell has designated Todd as AV® Peer Review Rated, and Minnesota Law & Politics Magazine has recognized Todd as a Super Lawyer.