Hello sun listeners. Thank you for joining us today on the Sun Leaders podcast service management section. I your host Ryan Bankston with CIO Legal.

We are a fractional executive outfit that helps solo and small practice law firms with their technology. If you think you could benefit and your firm could benefit from a part time CIO, give us a call or look us up at CIO Legal. We started just 200amonth, month to month and could show you great things.

I am so very happy to be joined by Joshua Lennon today. He is the in house counsel for Clio for many years now and he has been putting together a report every year tracking trends in legal and the first time I saw it I geeked out quite a bit. It’s got a lot of very good material in it this year.

It’s had great material in it year to year, so tracking some really cool trends. And he’s joined me today to talk a little bit about his career Clio and absolutely a lot about this legal trends report. Joshua, thank you so much for joining me today.

Thank you so much for having me. I do have to hit issue one tiny correction and I’m not the in house counsel at Clio. I am our lawyer in residence, which is my made up title.

There are two reasons for that. I have this weird made up title and the first of which is I am admitted to New York, but I live and work in Vancouver, Canada and as anybody with a law degree knows, they don’t travel well. Oh.

The second reason is my job duties at Clio are incredibly varied, but it can really be kind of shorthanded to I translate the needs and requirements of lawyers and law firms to a technology company. And in conversations like this I actually am really lucky and I get to translate technology back to law firms and lawyers. And so I’m kind of a voice of the customer slash legal scholar, slash problem maker inside of Clio and we had to make up a title for my job.

Yeah, well that’s wonderful. I actually just interviewed somebody in my December podcast that has a very similar story as far as a title they made up that’s like in house counsel but not really in house counsel and they had great things to say about you. Colin Levy from Malbec, who’s technology evangelist as opposed to in house counsel.

So I’m sure there’s some reasons like that for him as well. But I wanted to ask you about the in house journey. It was something I talked to Colin about.

Why did you choose to go in house over like joining a traditional firm out of law school. Part of it was circumstances, to be perfectly honest. I graduated in late 2007.

I actually graduated a semester early from law School in December 2007. And that was just before the kickoff of the great recession. And so it was just an awful time to be a law school graduate.

And firms weren’t hiring. There were lots of layoffs happening, and a lot of the bigger firms. Yeah.

And so there’s a whole almost generation of law students who had to kind of figure out their own way, and I was one of them. So I had been working with the Missouri attorney general as a law clerk. I graduated law school early and sat for the winter bar, which, I got, to be honest, was a disheartening experience as a first time bar taker.

Everybody else that was there was somebody who had taken it before and then how had to retake it. And those were not positive people. Yeah, the depth of winter in a hotel ballroom, it’s a recipe for stress.

But I just kind of rolled up my sleeves and took a look at what I already knew, what my network was, and I opened an immigration law firm in New York, where I was admitted and started helping people immigrate to the United States. I had kind of ready access to a network of international students who were interested in coming and studying in the States, especially at the graduate level. And as a part of that journey, I made two, like, really momentous choices, the first of which is that I knew I
didn’t know enough about running a business from law school to just be able to handle it all on my own.

So I looked for software that could help me. And at the time, your choices were spend tens of thousands of dollars on something that would be running on a server in your office. And I was a recent law school graduate.

I was really trying to operate lean, or there were two new pieces of software out there that were run through web browsers that were cloud based, and one of them is based in Canada, and one of them was based in Florida. And I chose the one based in Canada because my significant other is Canadian. And I was spending part of my time there.

So I was like, oh, if I’m going to be in Canada anyway, might as well use the Canadian one. The second momentous choice that I made at that time was I signed up for this new little microblogging service that I read about in a blog called Twitter. And I was an early adopter, and I started leading conversations and connections around the practice of law and legal education.

And what does it mean to be a lawyer and use technology. And those conversations included thought leaders around the world, like Richard Susskind, the author of the always misquoted the End of Lawyers book, because it’s the end of lawyers question mark, where he talks about technology in the practice of law, bar leaders across the United States and even beyond. And just solo and small firm practitioners who needed that water cooler.

We started having conversations, and as a part of just being active on social media, I connected with the software I was using to run my law firm, Clio, and we started having conversations on, hey, I think this feature could use something a little different or, oh, you’re going to be at this conference in my neck of the woods. Yeah, I’ll stop by. Yeah.

And I started building relationships not just with the software, but the people behind the software. And so my tip for people who are using social media to network and. And build your business is never limit yourself just to the social media.

Always take the time, whenever possible, to meet those people in real life. Oh, yeah, yeah. And.

And those two choices, choosing this little software, which is called Clio, and building a network and community, actually led to me visiting Clio’s headquarters in a little suburb of Vancouver, Canada, meeting the founders, and at the end of a really long day, they said we could actually use this type of insight internally. Would you ever consider joining us? That’s awesome. Yeah.

And it was just me being at the right place at the right time and saying yes to an opportunity that was back in 2012. And now for 12 years, I’ve been in my lawyer and residence role, helping do my part to improve the practice of law. That’s wonderful.

That is wonderful. That’s a cool story. I remember that time I got involved in legal tech, like 2007.

So around that time, I remember from where I sat, some of the technology changes. The biggest one being word going from the toolbars all over the screen to the ribbon. Yeah.

Oh, God, the ribbon. I still struggle with the ribbon. I am old enough that I grew up on WordPerfect.

Yeah, yeah. I used to have a firm I worked with out of Oklahoma that used just so much word. Perfect stuff.

I think it was. It had to do with just who they were aligned with and, you know, but you don’t really see much of that. You know, it’s always.

It’s all word. Yeah, it’s all word. Yeah.

Because it just comes on their laptops now. Right. And so it became the default system.

Yeah, yeah, absolutely. Oh, boy. But I remember some of the softwares back then, like Hummingbird, which Was the DM back then, that was really cool.

And, and then some of the changes with, with, with billing time and billing softwares and some of those growing pains. And then of course, watching the above, the law blog, for what firms were laying off and how many people were getting laid off, it was. Yeah, yeah, yeah, yeah.

They first they started by canceling their incoming class of, of recent hires. Right. And then it was voluntary buyouts and then it was, you’re fired.

Yeah. It was like every day for months. That type of news was coming out tough.

And then what, like two months later they’re like, oh, we’re going to bring in 70 summer associates. Yeah, right. Yeah.

But that’s just. Is what it is. Right? Yeah.

And we’re still seeing some firms actually struggle. They’ve got partners who want to retire and they can’t because they didn’t bring in enough people over enough period of time to kind of have the firm continue. Yeah, yeah.

So. And I think we’re going to enter a new period of that because of the impact of AI on productivity. Yeah, that makes sense.

So you’ve been doing this report for a while. Yeah. So why did you start it? Yeah.

So for your listeners, we’re talking about the Legal Trends Report. This is a report that’s put out annually by Clio. We’ve been doing it since 2016.

Uh, I’ve been fortunate enough to be a part of the team making it every year. And why did we start publishing it? It’s because we realized that Clio had an insight into the practice of law that quite frankly had never existed before. So what do I mean by that? I mentioned that when I chose Clio that I accessed it via my web browser.

I didn’t like install it on my machine. I didn’t have to have a server that’s cloud based software. That means every law firm and every lawyer and every paralegal that’s using Clio is actually using the same instance of Clio.

They’re all running on the same software. And while Clio contractually and technologically cannot see the confidential information in these case files that are being stored with us, we can see some usage metrics on how people are using Clio. Right.

Like, are they using a mobile app, for example, and we have a mobile app for lawyers or what time of month do we see a lot of bills being created? Right. And it can get somewhat granular to like, certain types of settings and making sure that Clio works efficiently with certain types of settings. And so the one I always break out is what lawyers charge as a part of their hourly rate.

90% of law firms that use CLIO put in an hourly rate for their users, and we need to know kind of the range of those so that we can calculate bills. Right. So can we calculate a bill with the smallest hourly rate stored with us? Can we calculate a bill with the largest? And.

And it could be something as simple as, do we actually have enough space on the bill for somebody who has, like, a really high hourly rate? And so their numbers are just going to take up more space. So when we look at kind of all of these different users and their different hourly rates, I can’t tell you who is who, but I can see there’s a low number, high number, and this bell curve in between. And that bell curve actually tells me what’s the average hourly rate charged by lawyers in the U.

S. it’s 340 bucks right now. But when we add a couple other data points, like what state is this account in? Or these accounts in, I can tell you the average hourly rate for a lawyer in New York and how that differs from Texas and how that differs from Montana.

I can tell you, based on practice areas, how do hourly rates differ? And this insight just never existed before. Like, when I started out, I was trying to figure out what to charge as an immigration attorney. I had no place to go.

I could ask a couple of people in my network. Yeah. And hope that they were good business people and could give me good information, but I really just had to make it up with no.

No basis. Yeah. That part of the report is awesome.

I just have to say, like, it’s definitely what got me so interested in the report because I’m just kind of a sucker for metrics and KPIs. And so when I saw, like, the early release of the report for talking about utilization realization and collection, I thought, oh, how could firms I work with use this as a benchmark and do a gap assessment and start to look at how they could move the needle on some of these numbers? And then when I saw the full report come out, and I see how you segmented it by
state, you segmented it by practice area. I mean, that is huge.

It’s like, it can actually be a benchmark for that type of an operational activity, which could bring a lot of strategic value in context to what type of strategies the firm’s taking when it comes to their improvement plans. Not just, hey, are we charging enough or too much? But looking at that utilization rate and the realization rate and starting to ask themselves What? Why do we do so much better than everybody in our state here, but over here we’re doing so much worse. Yeah, that’s absolutely
it.

Yeah. And so you’ve touched on some of the metrics that we now include every year. So our key performance indicators you mentioned utilization rate, how much of your day is just basically spent on billable work versus non billable work.

Realization rate, how much of the recorded billable work in ends up on an invoice. And then collection rate, how much of that invoice our clients actually paying. And we see these numbers vary from year to year.

I think we’ve mostly seen an upward trend on utilization, which is good. I think that means clio’s building the right features for lawyers and lawyers are learning to delegate non billable activities. More like hiring a part time cio.

Right. To handle the technology rather than do it themselves. Because I gotta be honest, for 200 bucks to get a part time CIO so you can go out and bill at 340 bucks an hour.

That’s a smart business decision. Yeah, yeah, yeah. And you save your customers like one hour, they’ve made a profit on hiring you.

Yeah, absolutely. Yeah. So it’s just interesting to see that.

But realization rate, for example, I find is a very stubborn metric. How much recorded billable work is put onto the invoice. It’s always around 80s to high 80 percentiles.

And that’s the one. Why don’t those two numbers typically match? Why would an attorney or any practice have more billable hours than what they actually would. Actually makes it under the invoice? Yeah, that’s a great question.

And so we have surveyed lawyers like, tell us why you write down your bills. And a good chunk of it is based on emotion. Either they feel empathy for the client, like I can’t charge them this much, or they feel fear, oh, the client’s really going to push back on them.

And so they, they write off a portion of the work that they’ve done. Wow. But then I could see, I could see where larger firms would do it as like a quality control.

Right. Like a managing partner looking over something and being like, oh, this new guy, weirdly enough. And, and, and we can talk about that in a sec.

That’s not the case. Oh. So, but then the, the one, the last one, collections, right.

You give yourself this haircut, you write down the amount that you charge your clients, and then the client only pays like 89 to 91% on average for law firms of their invoices. So you’re giving yourself this haircut and still like not getting, not getting 100% paid. So yeah, I wanted to ask you about collections as far as how that metric may change for different practices.

Like, like, for instance, like a, like a personal injury firm. Right. Probably doesn’t track collections as one of their top three KPIs.

Or would they? So that’s a really good question. And we do know that different KPIs are more applicable to different practice areas and different business models within those practice areas. Right.

So you could be a family law lawyer that charges flat or fixed fees. Right. And suddenly then it’s completely different set of performance metrics than a firm that bills hourly and submits a bill at the end of the month or somebody who does value based billing, like contingency fees, like personal injuries.

And what’s been really interesting about the Legal Trends Report is every year we’re kind of expanding our understanding of all of these different business models and approaches to running a law firm and giving more and more insight into those. And so, for example, last year as part of the 2023 release, we introduced a new API called Lockup. I love this.

I love Lockup. And it’s an accounting concept that really just takes a look at your last year’s annual revenue and then takes a look at are you like having a good billing process and a good collection process that minimizes the amount of your expected annual revenue that’s just locked up. Right.

And so if you take too long to bill, your revenue’s locked up. If you make it hard for clients to pay their bills, that revenue is locked up. And what we found is in the US the, the median lockup for law firms is around 97 days.

So that’s three months of your annual revenue that you’re just kind of waiting and hoping it comes in. And it explains why a lot of law firms have like high credit card bills or have to rely on lines of credit from the bank or aren’t investing in their law firms because they’re just not taking the time to unlock cash flow. Yeah, one of my, one of my kind of most impressive clients almost lost their firm over not understanding that early on.

You know, firm starts, they’ve got a couple of attorneys in, they’re doing great work, but they don’t have three months of, you know, expenses just sitting in an account that they can spend. And so that caught up to them. I imagine that there’s probably a lot of solos or even small firms that don’t really prepare for that.

Yeah, they operate month to month and don’t think about, am I setting myself up for a successful year? Right. And so our legal trends report kind of ask these questions, what do you need to know? Where’s the industry at and what can we do to be better? And so one of the things you mentioned before is managing partners taking a look at a bill and writing it down. But we actually have a bill approval feature where say you’ve got like an office manager or a bookkeeper, they prepare the bills, but
then somebody has to approve them before they go out.

And what we find is when there is this bill approval feature is used, that firm actually has a higher realization rate than firms that just don’t take that moment to review their bills. And that’s telling me that managing partners are looking at the work and saying, yeah, we did that, we should get paid as opposed to other firms where they might just be like we are again, have these emotions that are driving us to write them down. So having that beat of review actually, does that carry over into
the collection? Yes, actually it does.

So again, this is part of our 2023 release. We, we, we looked at billing and collections features in Clio that actually impact realization and collections. And what we found is that people who really kind of lean in and adopt certain features in Clio actually have both higher realization, more hours end up on the bill, and higher collection rates, but clients are more likely to, to pay that bigger bill.

And so it’s actually a real benefit to, to adopt what we, we shorthand called these KPI levers. So there were 11. The ones that I remember off top of my head are things like emailing the bill rather than posting it, allowing people to pay online, allowing your software to provide automated reminders to pay a bill.

Right. Like all of these things, like just increase the firm’s revenues without requiring a lot of extra effort on part of our customers who are using them. There was one exception, and that was payment plans.

So it had an increase in realization rate, but it appeared like it had a negative effect on collection rate. And when we dove into that, we’re like, why is this? And our collection rates calculated on a rolling basis. And the reason is not everybody pays at the same time.

Right. And so some customers, especially those who are using like email bill sharing and online bill payments, they get paid quick. Like 50% of their bills tend to be paid within the first week that they they’re issued.

But people who are printing their bills or people who are getting paid by check and have to go deposit that at the bank, like, physically, they take longer to record bill payments. So we do this rolling basis, and it tends to be around three months for our calculations in the report. But payment plans actually tend to run longer than three months.

So it’s usually half a year to a year. And so from our kind of statistical data point of view, it looks like there’s a bunch of unpaid bills, but really they’re just getting paid over a longer period of time. So when we looked at that, we’re like, okay, are payment plans actually a bad idea for law firms? And what we found is, while it may look like your collection rate’s going down, for solo law firms that use them, it was a 70% increase in revenue.

For larger firms, it averaged around a 43% increase in revenue. That’s like giving yourself a 50% raise just by being able to say to a customer, yeah, I know this is a big bill. Here’s how we’re going to do a payment plan for it and let CLIO just handle that for you.

I love that you’re covering this because this is something that, like, folks that study lean Six Sigma or, you know, kind of like have that more formal training when it comes to process improvement and stuff. They talk about these things, you know, from standard deviation to, like, your measurement system and how you can identify exactly what you’re talking about, where the way you’re measuring something is telling you that it’s bad. But when you actually look into it, it’s not.

You’re just measuring it wrong, you know? Um, and that’s wonderful. I’m so glad that, that you’re covering that. Cause I feel like that’s really important.

And so many. I. I’ve seen this so many different, you know, C Suite executives, directors, they look over a report, you know, and then they. They don’t start to scratch their head and say, why? Or they’ll just be like, oh, this is wrong.

The whole report’s wrong. Right. So it’s so important to be able to dig into those measurements and the methods of measurements and understanding statistics so that you can catch that kind of stuff.

So that’s really cool. Another thing I wanted to point out in this lockup thing that you’re doing, it enables firms to measure against each other in a way that’s helpful because we talked earlier about you could use these KPIs as a benchmark, but without using lockup. You know, it’s.

You don’t know if you’re comparing against a bunch of, like, 50 attorney firms or like, a 1, 700 attorney firm that’s skewing the metrics for everybody. Right. But when you do that lockup calculation, suddenly you’re able to compare like apples to apples, you know, it removes some of that ambiguity.

Right, Absolutely the case. But we do also understand that there are different impacts that come from having different size law firms. And so for the last couple years, in addition to our annual release of Legal Trends report, we’ve also been doing annual releases of the legal trends for solo and small law firms and the legal trends for mid sized law firms.

Because we do see that the larger the law firm, some of those KPIs just shift. For example, utilization rate is high, 20 or more lawyers and it’s because they tend to hire non lawyers to handle some of the business stuff. And so with solo and small law firms, the utilization rate tends to be in like high 20s to low 30%.

They, they get to bill about a third of their day. But in these mid sized law firms, it’s just under 50% of their day is spent on billable work. Right.

And it shows that investing in people who can handle parts of your business that aren’t generating you revenue, but are still like a necessary thing, like say it actually is a really smart investment for these law firms. Lockup is different across them. One of the more interesting things that we saw is we take a look at certain metrics over time and one of the ones that we’ve been publishing for the last two years is we call the legal productivity Index.

Our lawyers just becoming more productive. Right. When we looked at the number of matters that timekeepers are working on, it was going up for solo and small law firms.

They were handling more cases per timekeeper, but when we looked at our mid sized customers, it was flat. They were not handling more cases. We’re like, this is really weird.

Why, why is this? And so we took a look at the ratio of lawyers to non lawyers in, in different sized law firms. And what we found is these mid sized law firms use more non lawyer timekeepers per matter. And the way paralegals like.

Paralegals. Yeah, exactly right. And, and this is really weird.

It correlates the number of non lawyers that they have per matter correlates to how the economy is doing. So when business is good, they hire a bunch more paralegals. When business slows down, they reduce their head count and that keeps the amount of cases that everybody works on just flat.

Yeah, makes sense. But until, until you like dig into these numbers now, there’s no way to know I often say that having big data actually just raises more questions than answers, which is great for me because now I, I get to, I keep, I ask all these questions year after year and I’m lucky enough to be able to, through my own experience and understanding the legal system, to be able to look at a lot of the data and help come up with hypotheses as to why we’re seeing this data from law firms. And
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So that makes a lot of sense. Before we run out of time, I’d love to dig into a couple of other sections of the report. I was going to ask you what your favorite section of the report is, but.

And you, you light up on the KPIs. So I’m thinking maybe you’re a data nerd like me and you love all those numbers. I’ve become a data nerd as a part of working at Clio.

I was an English major and undergrad and for me it was always like what’s a good story? But now I’m collaborating hundreds of thousands of lawyers on actually writing our next story. So I’ve had to learn the data and the, and the statistics behind it so that I can accurately tell this industry how they’re performing and show them evidence of where we can go and do better. Yeah, that makes a lot of sense.

So on that note, what section of the report is your second favorite? Ooh, well, we, we do publish slightly different stories every year. And this year we really dug into artificial intelligence potential impact, not just on the practice of law, but on firm revenue. A little over a year ago, there was a report put out by Goldman Sachs that said AI is going to have like the super wide impact.

And one of the industries they mentioned that would be heavily impacted was legal. They claimed that 40% of legal work could be automated, 43% of roles might be eliminated, but they didn’t really show their work. And so in reading kind of their descriptions of their methods, I noticed that the classification system that they, they used for activities is very standardized and has components that relate to the legal industry.

And when you really dug down into it, a lot of those work activities they were describing looked like time entries. Well, I have. Were those all Clio time entries? Not, not in, in this classification system that Bulman was using.

But in our research I was like, if these are time entries, I have millions of those. Let’s, let’s take a look and see. Can we figure out from time entries how much of legal work is actually automated? So again, we only look at aggregated anonymized data.

And so we had to come up with a way to identify anonymized time entries without actually looking at them. But we were able to do that. And I was able to pull 7 million time entries out of Clio’s data set.

And we then ran them through an internally hosted large language learning model. So an AI system to read the anonymized time entry and classify it against these work activities that Goldman Sachs was using and then evaluate those for automation. And what we found is that on average, 74% of a law firm’s billable time entries are subject to automation by AI.

Now 74% it vary by role. 57% of time injuries that were recorded by lawyers had a degree of automation. 80% of legal secretaries had automation potential.

And when we calculated the revenue impact of this, just for lawyers alone, it was looking like automation could potentially reduce billable time enough that a firm would lose on average $27,000 per lawyer per year. Right. If they’re just billing hourly and getting their work done faster because of the automation.

And that’s not reflecting any rates, like not increasing rates or something like that. It makes sense. Yeah.

There are two points I want to raise from this, that just from that like bold statement of 74%, the first of which is there were no work activities that lawyers and the rest of the law firm do that aren’t subject to automation. Like everything had a Degree of automation, but nothing was automatable. 100%.

Right. So, for example, yeah. Some of those sections were kind of stood out to me and made me scratch my head and really want to kind of be able to dig into how they were evaluated.

Because some of the things that scored high were like, gather evidence to formulate defense by interviewing clients and witnesses to ascertain facts of a case. And then another one was like, selecting jury or jurors, arguing motions, meeting with judges. And like, how.

How is AI going to meet with the judge? But. But I’m sure there’s. There’s something I’m missing there or some assumption I’m making.

Yeah, I, I could just give AI a list of jurors. Like, I want. I’m gonna ask the court to eliminate Juror 1, 12 and 15.

Right. Draft the request. Right.

And suddenly the actual request to the judge is drafted with the right format, the right language. Yeah. Then I just print it out and sign it.

Right. As opposed to me having to go and actually type out that form. And even with templates, it still takes longer than what we see Genai can do with the information now.

And so there were a couple of work activities. The time injuries just had huge on information potential. Preparing legal documents was actually one of the highest, and it accounted for nearly 20% of time entries that we’ve recorded, and it was 80% automatable.

No surprise there. Yeah. I mean, gen AI, it’s so good at generating text.

Right. It might not be the right text, but if it can get it 80% right, then there’s going to be this expectation that lawyers will be more efficient, more productive. And from clients and judges, there’s going to be the expectation that they bill less per n too.

Yeah. Yeah. And that’s something that I think we’re really going to see firms struggle with.

So, yeah, my favorite section this year is taking a look at that AI because it used clio’s unique data set. It took a look at outside reporting and like, said, okay, we’re really going to test what everybody else is talking about. We’re not just going to say it, we’re going to show it.

And then from there we talk about, okay, does that mean you should not adopt AI? And the answer is no, you should if it’s the right fit for your work activities. But in a later section, how do you adjust for that? And we think law firms are going to shift not from not just billing hourly fees, but also having flat fees as a part of their engagements. And interestingly, when we surveyed lawyers about their use of AI and their, their business models.

There was actually a really interesting correlation. Firms that only bill in flat fees had the highest and widest adoption rates of AI tools because they figured out they could increase their productivity without decreasing their revenue. Right.

And so I think we’re going to see law firms struggle until they figure out, okay, this portion of this work I can automate and just charge a flat fee. Right. And then devote my time and demonstrate my value to my client on these things that I’m billing out right now.

Yeah, I like you touched on it at the end of that section where you were using the large language model and the Goldman Sachs stuff. You had the survey of Clio customers about how they’re using AI in their firms and that had some pretty interesting takeaways. So I just wanted to call that out before getting into flat fees too much because that’s a whole another section of the survey.

Right? It absolutely is and very impressive. I don’t know if we’ll have time to get into it too much because I know you have a company meeting coming up, but that survey of how Clio customers are using AI, super cool. Not any big surprises there.

Like seeing that a lot of firms are using it for marketing. You can see that clearly out on LinkedIn when you look at your local market. I was wondering if that survey was maybe giving some kind of like indication of some things that might be coming down the pike for Clio on some of the AI tools.

Like is Clio going to start using AI to track time and generate bills? Well, we actually have issued our first AI tool. We call it Clio Duo. It’s integrated into our Clio Manage your practice Management and it is a chat based assistant that can help you across all of your practice management.

So it can raise like calendar events and tasks to your attention. It can draft communications that you can then send as messages, either email or text messages or secure messages. Be Cleo’s client portal.

It can summarize documents and analyze them for you and answer questions about the document in this chat format. And it can actually do things like recommend time entries because we do know that clients tend to prefer detailed time entries. Right.

I’m not just paying for drafting. What are you drafting? Why is this, why is this document important? And Clio Duo can just write those things for you? Yeah, that’s. Yeah.

As we continue to advance this tool even in can start to do even more for you. Like, hey, these are the things you worked on today that don’t have Time entries. Do you want me to generate some or.

These emails came in and these are the responses that you drafted. Are these billable emails? Right. So we can really kind of help you see what you’ve missed as we continue to advance its capabilities.

There are two things that we’re working on that I think our salesperson know at this. Not every account has it. You have to opt into it.

And two, it only looks at your data. We don’t do any training on law firm data. Right.

Again, we’ll have some usage metrics, just like we talked about with other settings in Clio, but we actually don’t look at what data you’re sharing with Clio Duo, and it does not go into training data for later. So we’re very mindful of the confidentiality rules, and we set ourselves up, as I said before, both contractually and technologically, to preserve client confidentiality. That’s awesome.

Yeah, awesome. I wanted to ask you, what about? Well, there’s a. There’s a couple things I want to ask you about Duo, but one, on the, like, the electronic data, does it preserve the prompts? Like, if I got like a litigation hold or something, and suddenly I need to, you know, preserve.

Produce my prompts, like, could I get that out of Duo? We do keep a history log of chats with Duo. Right. That way you can go back and see this user asked this question in the chat and then, like, received this output that they then used.

Right. So they recommended this is the email message. Do you want to send that email? Yes or no? And so you can go back and kind of see the history of that.

That was actually really important. I communicated with our designers and developers that I think that would be a really highly desirable and useful feature on Wallburn, and that they listened. Yeah, yeah.

I was thinking about, like, where there’s, like, an obligation to preserve some data because something might be headed into litigation, and that the, you know, the prompts that you’re putting in, which, I mean, a lot of people put a lot of effort into that. If they’re prompt engineers, right, and they’ve taken classes, they really know how to prompt, they may need to preserve those prompts. And then the results of those prompts, and then those may even at some point go into production, which, you
know, some of this is still new.

Right. So so much of it is evolving. I wanted to ask you about a use case.

This came up for me recently. Somebody asked me about this, and I was thinking, huh, I wonder if Duo would do that. If I put a number of contracts into a matter and then chatted with Duo and asked which one of the contracts like to look at all the assignment provisions in the different contracts and let me know which of the contracts permitted assignment and which don’t.

Could it do that? The answer is maybe. Maybe. So we do have a document analyzer function and so you can load documents into it.

Right now, I think it’s currently limited to five at a time, but the responses are only as good as the prompts. And so it can look for and answer questions about the documents. And so if there is a section like labeled assignment or uses assignment language that our large language learning model recognizes, then it absolutely could find it.

But if it’s using a term of art that might be unique to your contracts, that wouldn’t be data that we’ve trained on. And so you might have to prompt it a little more detailed to find that. Yeah.

And the reason we’re having it, I’m disclosing it work that way, is this is just one way that we avoid the hallucination risk or minimize the hallucination risk of within Clio Duo is we’re designing the interface to tell you when it doesn’t know something, that doesn’t mean it can’t learn. And so if you give it a more detailed prompt of what to look for, then it can find it. That’s awesome.

Yeah. Is it gonna. Is a Duo and that functionality gonna be going into Clio Draft at some some future date? Yeah.

We think Generative AI actually has applicability across the different Clio softwares. But the use cases differ. Right.

Which is really interesting. So in our recent Legal Trends report, we actually did a secret shop of 500 law firms. And unfortunately, law firms performed really poorly when it came to handling potential clients.

But one of the bright points was that the legal consumers and shoppers that we talked to actually said chatbots are a good starting point for potential clients. Right? Yeah. I mean, when your alternative is calling a firm that’s not going to answer or emailing a firm that’s not going to reply to you, it totally sense the chatbot, even though you’re not talking to a human.

But that makes complete sense. And so the AI use case for our client intake tool is going to be like chatbot functionality. The Gen AI use case for Clio Draft, which is our advanced document drafting tool, is going to be not just text generation, but we actually think knowledge management across your whole document library.

Like, hey, here’s this clause from this document. Do you want me to rewrite and repurpose it here. So don’t just write a contract, but write a contract based on my document library.

And that’s absolutely something that can and should be a part of draft. Yeah, absolutely. That’s going to be exciting.

Yeah, there’s so much exciting stuff going on these days. CNN. Yeah.

I remember at Ilticon 2023, I was sitting in a room and we were just talking about how the hype was changing. Like, everybody had been like, oh, you know, Covid and cloud based and zoom and teams and that’s all anybody wanted to talk about. And then generation AI or generative AI came out and, and like the CIO of Saul Ewing was like, this is what, you know, next year, year, that’s all we’re going to talk about.

He was like, you know, this survey, we’re talking a lot about teams and migrations and cloud and yada yada, but next year it’s all going to be AI. And he was right. Yeah.

It has so many opportunities, but I think companies need to be mindful of the use cases. Right? You can’t just shoehorn in a chatbot chatgpt and expect it to generate value. And so vendors like Clio, we’re taking our time and we’re researching like, what’s the best fit here in this particular use case versus something that should be somewhere else.

Right. And not everything needs to be AI for it to give value. So let’s have the best mix of those things together.

Yeah, absolutely. I have three questions I wanted to ask you about flat fees and then I think I’ll have to let the rest of my questions go so that you can get to your meeting. But if you don’t mind, flat fees is a big part of that report this year.

It seems like it’s the future, you know. So I did want to ask a couple of things about flat fees. How would a new practice evaluate how to price their bundled services? Like a new firm, they don’t have like a, you know, ton of data to go off of.

Like, is there anything out there that they could find helpful as far as like some type of benchmarks or pricings or anything? Yeah, actually, I think there is. Just from Clio, we actually have our 2018 release. Took a look at the percentile revenue per matter practice area based on percentiles.

So what Was like the 95th percentile versus the median versus the 5%? So what was kind of the low, middle and high of what firms on average are getting per matter? It’s a big chart in our 2018 one. And so right there you could take a look at what are law firms getting from a family law case per case and how many of those would I need to handle to cover my overhead and how many more of those would I need to earn a profit? Right, and that can be part of your basis for calculating a flat fee right
there. That is awesome.

And you said that’s in the 2018 Legal Trends Report. Legal Trends Report, yeah. All of them are available for free.

All they have to do is go to clio.com C-L-I-O.com ltr which is short for legal trends report. So clio.com ltr you can download every Legal Trends report. As I said, we do slightly different stories every year as well as our benchmark key performance indicators.

Got it. So that would be, I think, a good place to start. That’s awesome.

It does to be useful though, they have to know kind of their other costs. Right. So that number in and of itself is a good starting point for what to charge.

But then how many of those, how much do you have to spend to get a client? Right, your customer acquisition costs. There, there are so many more numbers and considerations around that that we’re just starting to dig into for flat fees. Yeah, that makes sense.

That makes sense. Yeah, I think I’ll, I’ll just end on this last question because I think it’s really neat how the flat fees you get, you get your, you know, revenue sooner, you get paid faster matters close faster. There’s a lot of great data about that.

But I had a question. If, if, if my firm gets paid on a flat fee, where’s that money go? Operating account or trust account? It does depend on your jurisdiction and your engagement agreement with your, your client. So most states actually do advise that goes into trust account until you perform the services and then you can transfer it to operating.

But some states, like New York do allow it to go into operating, but it still has to be kind of refundable if say the client cancels or anything. And so I think mixing it with your operating account, while permitted, actually can be kind of challenging because that’s where you spend money, right? So I think the best practice is to put it in trust and then transfer once the services are performed and to make sure that your engagement agreement with your client outlines if any portion is non
refundable as per your jurisdiction’s rules. And what will be the process for returning unearned fees from a flat fee, like if it’s earned on receipt, you could Technically just put into your operating account, but there’s always going to be some client that complains.

And every jurisdiction’s rules tell you in the event of a fee dispute, those fees have to be held in trust. So I find it’s better just to keep it there anyway. But we built a payment processing tool that comes in Clio Manage that can just put things directly into your trust account and comply with your ethical rules around trust accounting so it can’t be pulled out by anybody else.

And it does all the reporting that you need as per your jurisdiction’s rules, like client ledgers and things like that. So we do find that firms that accept fees into trust, not just flat fees, but all fees into trust and use them to pay invoices actually again have higher realization rate, higher collection rate, and also higher revenue per matter. Oh, that’s wonderful.

Yeah, it gives both the law firms and clients kind of price certainty. Yeah, right. And so yeah, if you’re charging flat fees put into trust is the best practice.

But also if you’re charging hourly, think about an advanced fee deposit advantage. Put that into trust as well. That is wonderful.

That was an incredible answer, Joshua. Very impressive that you that data about the. Is that in one of the releases in one of the reports? Yeah, the most recent is again the KPI levers that we talked about in 2023.

Download that one there. We looked at trust requests and another feature that we call the Evergreen Trust Amount. So say you’re a firm that not only asks for an advanced fee deposit, but also asks the client keep a minimum level of fees held in trust.

And we have a feature that sets that number and reminds you when it goes below and helps you request more. And both of those features like dramatically increased both realization rate and collection rates for the firms that are using them. Super cool.

Thank you so much, Joshua. This has been a great. This has been a great podcast.

I really enjoy chatting with you. You’re full of so much information. I hope that maybe we can do this again next year after next year’s report is out and maybe we’ll see each other at Cliocon or who knows, one of those under other wonderful conferences that you kind of alluded to before.

I try to go to ILTA kind from time to time. I want to make the ALA conference next year hopefully. So maybe I’ll see you at one of those.

I very much look forward to it. I enjoy all those conferences. I’m lucky that we actually have a team that no goes to different conferences.

So I mostly go to the ones where I’m speaking. But I’m actively looking to speak at Ava Tech show next year, Ilticon and of course the Clio Cloud conference, which we call Clio Con, which is going to be in the middle of October at Boston this, this upcoming year in 2025. So that’s awesome.

Come for Cleocon, stay for lobster and chowder. That’s awesome. Yeah, I would love to.

I’d love to. Well, who knows, maybe we’ll both be speaking at Delta. I’m this year is the first year I’m putting in a speaker app actually, so which I don’t think many people necessarily get it on their first round, but we’ll see.

Maybe, maybe somebody wants to know how you can practically shift left your IT operations using Lean Six Sigma tools. Spidey wants to look you up, Joshua. How would they find you? Yeah, I am available on LinkedIn under Joshua Lennon.

L E N O N I’m active on Blue sky, the new social network and my username there is just Joshua Lennon. One word and of course you can email me at Joshua Cleo.com C L I O.com Awesome. Awesome.

Thank you so much Joshua. Well, that’s it for us listeners. Thank you so much for listening to us.

If you’d like to catch me at the Florida Bar Winter Conference in Orlando next month, I will be there hanging out with the solo and small firm section and listen for our next episode. Next month I scheduled to interview a strategic operations manager from McGlinchey Stafford and I cannot wait to ask her some really cool questions like whether you should rent or buy your office. Thank you so much sun listeners.

Stay groovy and we’ll see you around. Sa.