How Law Firms can benefit from implementing the Right KPIs – Guest Post

Introduction

Over the passage of time during the pandemic, law firms have implemented numerous kinds of strategies to sustain their processes and increment the possibilities of financial benefit. In fact, many firms fearing a potential drop in demand, significantly reduced their expenses in order to retain their profitable state.

However, there are other firms as well that have taken a longer term-view by holding their investments with the aim of getting a competitive edge through them as the pandemic continues.

Fortunately, the good news is that things were not as bad for most of the firms. Demand levels were ample, especially in the second half of the year. As revenue per lawyer (RPL) remained stable and cost per lawyer down, the majority of the firms increased their profitability by the end of the year.   

But coming to the performance of the firms, it varied greatly as the reasons behind failure or success were different for every firm. There were firms that achieved revenue as well as profit growth; however, there were those firms as well that witnessed their incomes shrink and profitability diminish. Also, many more found themselves somewhere between these two outcomes.

This gives rise to the question of what factors have led some firms to prosper even during a time of a catastrophic global crisis?

This secret for ensuring and multiplying the profitability of a law firm comes out to be choosing the right “key performance indicators” or KPIs. The right KPIs can acknowledge you regarding not only how many hours each employee has billed or how much money is coming in but also about the overall business health. By acquiring a robust understanding related to the most relevant and useful KPIs, you can effectively develop strategic methods for your firm, know about the most profit-earning business activities, and decide areas of your business that have room for improvement. In fact, many competent providers of legal support services that law firms hire make use of these KPIs to provide optimum solutions. Let us see and understand some of these hidden KPIs in detail:

Marketing KPIs

Law firms and businesses alike do not succeed because they give out more than what they get. Therefore, measuring more than just the traditional billable time metrics can aid in getting a better understanding of your firm’s present potential monetary situation.

Here are some essential marketing KPIs to implement:

• Firm’s website traffic
• Number of marketing actions taken
• Cost of marketing per one client
• Marketing budget ratio
• Performance of email marketing
• Website landing page conversions.

Client Satisfaction KPIs

Measurement of client satisfaction is a new practice for the legal sector, but having knowledge about what can be improved, with solid feedback as a basis, can be crucial for making a business successful today.

Here are few performance indicators for evaluating client satisfaction level:

• Quantity of client referrals
• Client satisfaction scores (assessed through software or manual survey)
• Rate of client retention

Productivity KPIs 

A law firm that is efficient is always profitable. However, productivity is a big concern for most, especially when the average legal professional’s billing is an average of 2.4 hours out of an 8- hour day (2018 Legal Trend Report).

Tracking your firm’s productivity can aid you in finding areas where time is being consumed uselessly and areas where time should be redirected to build revenue-generating opportunities.

Here are a few law firms KPIs for enhancing productivity:

• Quantity of billable hours
• The ratio of billed hours and non-billable hours worked
• Quantity of unbilled days
• Rate of utilization (ratio of billable hours and number of hours in a working day)
• Rate of realization( ratio of billable hours invoiced and number of billable hours worked)
• Rate of Collection (ratio of hours collected and the number of hours invoiced).

Financial KPIs 

Financials are central to the failure or success of a firm, so it is vital to pay critical attention to these given KPIs:

• Present anticipated annual costs (total amount of anticipated yearly expenses, including payrolls, for a year, based on the latest three month’s costs)
• The difference in your current run rate and current anticipated annual costs
• Operating account balance
• Amount of accounts receivable (AR) outstanding
• Age of accounts receivable
• Net income as a percentage of revenue
• Revenue billed per month.
• Rate of Realization rate ( amount billed as a proportion of the number of billable hours work done)
• Revenue collected in a month.
• Rate of collection (sum collected as a proportion of the sum billed)
• Amount of firm debt (credit cards, loans, lines of credit, etc.)
• Your current run rate ( estimated yearly revenue as per the past three months performance)

You can also consider looking at your average:

• Cost of revenue per matter
• Net overhead
• Fee per matter
• Cost of revenue per square foot of office space
• Revenue per employee
• Billed rate

Firm Culture KPIs

When you carefully observe the KPIs of your law firm, you will discover things beyond revenues and clients. You will come to realize that firm culture is a very important KPI that you might have overlooked. A firm’s culture KPI can give crucial insights regarding the organization’s health as the culture of an office can have a significant impact on clients, thus ultimately, on your business.

The KPIs related to a firm’s culture is:

• Employee satisfaction scores
• Employee turnover rates

Steps to using Law Firm KPIs

By now, you must have acquired few ideas for choosing the right KPIs that you want to monitor in your organization and how you can use them to their full potential.

Try implementing the traditional “Plan, Do, Check, Act” management model. Plan to accumulate data for your KPIs. Once you have decided and analyzed these KPIs, take the corrective and constructive actions and then repeat these every month.

Essentially, you must follow these six steps:

Choosing KPIs relevant to your firm’s goals:

Make sure you have a clear understanding of what the meaning of each KPI is and what importance it holds for your firm.

Set targets:

Make sure that the targets that you are setting are measurable and are based on the goals of your firm.

Track data for each KPI:

Some KPIs might reveal actionable insights instantly. However, others will require a few months of data.

Measure the results:

Run your KPI analysis each month and evaluate the reports promptly to make the required adjustments.

Make decisions:

Once you have acquired enough information from your implemented KPIs, you can exercise corrective actions as per your findings. One essential thing to keep in mind is that your analysis and activities are in alignment with the goals of your firm.

Repeat the cycle:

Your work is not done after you have made implementations on the basis of the collected data. You will have to revisit your KPIs uniformly to ensure that you are monitoring the right metrics, that you have set the right goals, and to know that whether your actions are making any positive impact on the things that you want to improve.  

Final Thoughts

Deciding and implementing the right KPIs into your law firm significantly help you in building a customized dashboard for monitoring and ensuring your law firms’ success. By setting specific goals, keeping track of them, and evaluating key performance indicators, you can make yourself fully confident to make more impactful decisions for your law firm.