Practice Area Selection: Choosing Where to Compete

Jul 13

11 min read

Most small firms do not choose their practice areas; they accumulate them. A first client brings a landlord and tenant dispute, a referral from a bank brings a run of conveyancing instructions, a former colleague sends a family matter, and within a few years the firm describes itself as general practice because that is the only description broad enough to cover what it does. There is nothing dishonourable in this history, and many sound firms have grown in this way. But law firm practice area selection, undertaken deliberately, is among the highest-leverage decisions a principal can make. It determines the competence the firm must maintain, the fees it can realistically charge, the clients it will attract, the professional indemnity risk it carries and the way in which it can use technology and delegation to improve its margins.

The decision is not simply whether to specialise. A firm may legitimately remain broad. The point is that the choice should be the product of analysis rather than accident, and that it should be revisited as the market, the firm's people and the firm's ambitions change. A firm that has never asked which of its practice areas earns a satisfactory return, which it performs well, and which it undertakes only because no one has declined the work, is making a strategic choice by default.

This article offers a framework for deciding where to compete. It sets out the criteria that matter, a method for assessing the firm's present position, the particular constraints that apply to small firms and sole practitioners, and a disciplined process for entering, narrowing or leaving a practice area. It is written for practitioners in firms of one to perhaps thirty fee earners, and it is jurisdiction-neutral. The professional rules that govern competence, conflicts and advertising differ, and the firm must apply those of its own regulator.

Why the choice deserves deliberate attention

Every practice area carries a cost of entry and a cost of staying. The cost of entry includes learning the substantive law, the procedure, the personalities in the registry or court, and the market conventions. The cost of staying includes keeping current with legislative and case law developments, maintaining precedents and checklists, training junior staff and holding the insurance cover that the work demands. A firm spread across eight practice areas pays these costs eight times, and may find that it is never the best in any of them.

Concentration also affects pricing. A firm that is known for a particular type of work can often quote with greater confidence, because it has done the work many times and understands how long it takes. A generalist quoting for an unfamiliar matter must either price in a wide margin of uncertainty and risk losing the instruction, or price tightly and absorb the overrun. Over time, the firm that repeats a defined type of work builds a body of data on its own costs and a library of precedents that reduce the cost of each further matter.

There is finally a question of professional satisfaction and retention. Fee earners who work in areas that match their interests and abilities tend to stay longer and to produce better work. A firm that spreads its people across work for which they have no inclination will find that its quality varies and that its best people look elsewhere.

The criteria that matter

No single factor settles the question. Six criteria, taken together, give a reasonably complete picture. The firm should assess each practice area against all six and resist the temptation to select on the basis of whichever is most attractive.

Demand and its durability

Is there sufficient demand for the service in the area the firm can serve, and is it likely to persist? Demand may be steady, as with property transfers, wills and estates, or cyclical, as with certain corporate and insolvency work. It may depend on a single large referrer, which is a concentration risk, or on a statutory change that might later be reversed. Look at the firm's own enquiry history, at the instructions received in recent years, at the volume of related activity at the registry or companies office, and at what colleagues in the profession say. Avoid reliance on unreferenced statistics; in the absence of reliable published data, the firm's own records and informed local knowledge are better guides than generalisations from other markets.

Margin and the economics of delivery

Revenue is not profit. A practice area must be assessed on the realised fee per matter, the time required, the proportion of work that can be delegated to a paralegal or junior, the rate of write-offs, the incidence of disbursements the firm must fund, and the speed with which fees are collected. Fixed-fee or scale-fee work, such as residential conveyancing, rewards efficiency and punishes inefficiency. Hourly work rewards the capacity to bill but exposes the firm to client resistance and to slow payment. Contingency or conditional arrangements, where permitted, shift risk to the firm.

Competence and credibility

The professional duty of competence is not satisfied by enthusiasm. A firm must have, or be able promptly to acquire, the knowledge and skill the work requires. This is partly a matter of the individual attorneys' experience and partly of the firm's systems, because a competent firm has checklists, precedents and supervision that maintain quality independently of any one person. Credibility is a related but distinct concept: the market's perception of whether the firm is a natural choice for the work. Credibility is earned through demonstrated results, published work, reputation with referrers and the visible presence of senior practitioners in the field.

Conflicts and the structure of the client base

Some practice areas generate conflicts of interest more readily than others. A small firm in a small jurisdiction that acts regularly for lenders may find that it cannot act for borrowers; a firm that acts for the principal local developers may be unable to act against any of them. Conflicts also affect the sustainability of a niche: if the firm's client base within a narrow field is a small, interconnected group, each new instruction may exclude the firm from several others. A conflicts analysis should be part of every decision to enter or concentrate on a practice area.

Risk and professional indemnity

Different areas of practice have different risk profiles. Work that involves handling client funds, time-critical procedural steps, large financial exposure or complex advice in unfamiliar territory carries more risk of claim or regulatory complaint. The firm should discuss its practice mix with its insurer or broker, because the cost and availability of cover, and the terms attached to it, may vary by practice area. A particular risk is accepting work that is outside the firm's competence, which may fall outside the cover or lead to difficulties with the insurer.

Strategic fit and leverage

Finally, consider how a practice area fits with the others and with the firm's ambitions. Some areas feed each other naturally: a firm that handles company formation may be well placed to advise on commercial contracts, employment matters and shareholder disputes. Some leverage existing assets, such as relationships with banks, accountants or developers. Some can be systematised and improved by technology, while others depend on bespoke advocacy. A principal who wishes to build a firm that can operate without constant personal involvement should weight those areas that lend themselves to process.

Assessing the firm's present position

Before considering new areas, establish a factual baseline. Most firms are surprised by what the figures show, and the exercise is valuable even if no change follows.

Collecting the data

For each practice area, assemble for the last two or three full financial years the number of matters opened, the fees billed and collected, the time recorded by each grade of fee earner, the disbursements funded, the write-offs and the average time from opening to closing. Where the firm has not consistently categorised matters by practice area, begin by doing so retrospectively for a sample. If time has not been recorded, estimate from a representative sample of matters and state the limitation of the estimate openly.

An illustrative calculation

The following arithmetic is illustrative only. It uses invented figures to show a method and is not market data. Suppose a firm compares two practice areas. In the first, the average fee per matter is a fixed sum and the average recorded time is six hours, of which four are performed by a paralegal. In the second, the average fee is higher, but the average recorded time is twenty-five hours, almost all by an attorney, with a significant proportion unbilled. Dividing realised fee by the cost of the time spent, valued at the cost of the person who performed it, may show that the lower-fee area yields a better return per hour of attorney time, because delegation and repetition reduce the attorney's share. The firm will draw a conclusion only by using its own figures, but the method, dividing realised revenue by the cost of the effort that produced it, is general.

Measure	What it reveals	Warning sign
Realised fee per matter	Real pricing power	Large gap between quoted and collected
Hours per matter by grade	Delegation and efficiency	Attorney performs most routine work
Write-offs and unbilled time	Pricing and scope discipline	Persistent write-offs on the same type of matter
Time to collection	Working capital burden	Fees paid long after the work concludes
Repeat and referral instructions	Client satisfaction and reputation	Almost entirely one-off clients
Complaints and claims history	Quality and risk	Recurring problems in one area

Segmenting by client, not only by law

Practice areas are one way to divide the work; client segments are another. A firm may find that its profitable work is not defined by the branch of law at all but by the client type, for example owner-managed businesses, landlords, professionals or diaspora families with property interests. Segmenting by client can reveal that a group of clients generates repeated, cross-referable work across several branches of law, which in turn suggests a more coherent positioning than a list of legal subjects.

Options available to a small firm

Having understood the present position, the firm can consider which of several postures is appropriate. They are not mutually exclusive in a long-term plan, but each has distinct implications.

Remaining a generalist by design

A general practice can be a rational strategy where the local market is small and cannot sustain specialists, where the firm's reputation rests on being the trusted first call for a community, and where the principal values breadth. The discipline is to ensure that generalism does not become an excuse for accepting any work. A firm that is general by design maintains a defined list of services it will provide, a referral network for those it will not, and standard processes for the areas it handles frequently.

Concentrating on a core with adjacent services

Many firms do best with a core practice area that generates most of the revenue and reputation, supported by two or three adjacent services that the core clients commonly need. A property-focused firm might add wills and estates and landlord and tenant advice; a company-focused firm might add commercial contracts and employment. The core absorbs the investment in precedents, systems and training; the adjacent services increase the lifetime value of each client.

Specialising in a niche

A narrow niche, such as a particular industry, a type of transaction or a category of client, can command stronger pricing and a clearer reputation. The risks are dependence on a small market, vulnerability to regulatory or commercial change, and the conflicts exposure discussed above. A niche suits a firm in which the principal has genuine depth and that has the means to build visibility in the field, through writing, speaking and relationships with the intermediaries who refer the work.

Leaving or declining practice areas

Withdrawal is also a choice. A practice area that has low margins, high risk, a poor fit with the firm's people and no strategic function should be reduced or closed. The mechanics deserve care: existing clients must be treated properly, open matters concluded or transferred with consent, and the firm should avoid abrupt cessation that could prejudice clients' interests. A planned withdrawal, with referral to colleagues who are better placed, protects the firm's reputation.

A disciplined process for deciding

The following process turns the analysis into a decision, and records the reasoning so that it may be reviewed.

Define the question. State whether the firm is considering entry into a new area, concentration on an existing one, or withdrawal from one. Different questions need different evidence.
Gather the baseline. Prepare the figures described above for the existing practice areas.
Score each option against the six criteria. A simple three-level scale, strong, adequate or weak, is sufficient. The purpose is to compel explicit judgement, not to produce a spurious numerical precision.
Test the assumptions. For each practice area under consideration, identify the three assumptions on which the case depends, such as that a particular referrer will continue to refer, or that a named attorney will remain with the firm, and consider what happens if each proves false.
Consider capacity. Establish who would perform the work, what training or recruitment is needed, and what other work would be displaced.
Run a limited trial where possible. Accept a small number of matters in the new area under close supervision, with defined success measures, before committing to a larger investment.
Decide and record. Set out the decision, the reasons, the review date and the measures by which success will be judged.
Review. At the stated date, compare the outcome with the expectation and adjust.

Questions the principal should answer in writing

Who is the typical client in this area and how do they find us?
What is the most common reason that matters in this area go wrong?
Who in the firm is, or will become, the recognised lead?
What would a competent competitor do better than we do?
What is the exit if the area does not perform?

Entering a new practice area responsibly

An attorney who has not previously practised in an area may nonetheless act within it if the duty of competence is satisfied. The conditions generally include the willingness to study the law, to obtain assistance from an experienced colleague or counsel, to supervise the work appropriately and to be open with the client where the circumstances warrant. It is not acceptable to learn at the client's expense without the client's informed awareness, nor to charge the client for the time spent acquiring basic knowledge that a competent practitioner in the field would already hold.

In practice, the firm entering a new area should assemble a starter kit: the principal statutes and rules, a short list of leading texts, a set of precedent documents drawn from reliable sources, a checklist of the stages of a typical matter and the names of two or three experienced practitioners who can be consulted. It should seek guidance on professional indemnity, notify the insurer where required, and consider whether the firm's website and marketing statements accurately describe its experience. Advertising rules in many jurisdictions prohibit claims of expertise that cannot be substantiated.

Common mistakes in practice area selection

Following the largest invoice. A practice area that produces a few large fees may have poor margins once the effort is counted.
Chasing fashion. New and fashionable fields attract many entrants, and the firm that arrives late may find that the premium has gone.
Overlooking the cost of keeping up. Areas in which the law changes rapidly consume continuing education time that smaller firms underestimate.
Dependence on a single referrer or client. The loss of that source can remove the area from the firm overnight.
Entering an area because of one enthusiastic attorney. If that person leaves, the firm retains the obligations without the capability.
Failing to price the work. A practice area without a considered pricing structure drifts into unprofitability.
Never saying no. Declining the wrong work is as important as accepting the right work.

Practical next steps

Classify every open and recently closed matter by practice area and client segment, if the firm has not already done so.
Produce a one-page summary of fees billed, fees collected, hours by grade and write-offs for each area over the last two or three years.
Score each practice area against the six criteria and identify one to strengthen, one to maintain and, if appropriate, one to reduce.
For any proposed new area, complete the conflicts analysis, the competence assessment and the insurance enquiry before accepting instructions.
Write a short statement of the services the firm offers and does not offer, and train staff to apply it when answering enquiries.
Establish a referral list for the work the firm declines.
Set a date, perhaps annually, to revisit the decision with fresh data.

How practice management software supports the decision

The analysis described above depends on matters being categorised consistently and on time, fees and disbursements being recorded against them, which is precisely what practice management software is designed to do. Legalytech provides a platform in which each matter carries a practice area, time entries and billing records, so that a principal can review profitability by area without assembling the figures by hand.

This article is provided for general information only and does not constitute legal advice. Practitioners should consult the rules of their own jurisdiction and regulator.