Tracking Law Firm Billing Metrics
Peter Drucker, who is credited with inventing the concept of modern business management, once said that you can’t manage what you don’t measure. He also said that you can’t improve what you don’t measure. These are simple thoughts, but there is a reason why these ideas have had such a lasting impact on businesses of all types, including law firms.
Lawyers provide legal services to clients for a fee. Subtract some marketing costs, office rent, and office supplies, and the rest is profit (minus taxes, obviously!). Something more or less like that.
The reality is that for firm success over the long-term, it is essential to track data that will allow firm managers to understand the firm’s business, its strengths and weaknesses, to best plan for the firm’s future. These data are often called key performance indicators (KPIs). While KPIs can (and should!) measure a multitude of data points for law firms, the most critical relate to billing data. Right now, can your firm identify expenses or annualized revenue or the value of matters your firm is working on? These are the types of data that can be tracked and used to best manage your firm. If you are not currently tracking data like this, how do you get started? If you are tracking data, how do you use this data?
What to Measure? Determining what your firm should measure as a KPI is an important gating question. This blog will discuss KPIs that are generally applicable, but each law firm is different and should consider its business when determining what KPIs are important to track. No matter the size of the firm, there is no doubt a mountain data available to use to paint a picture of a firm’s operations. Using a framework like SMART goals or something similar can help focus what is important to measure. Beyond developing KPIs independently, using software like Accurate Legal Billing (ALB) with built-in KPIs can get firms on the fast-track to analyzing data.
Measure your client satisfaction
Not every firm should start with diving into financial data. As a client service business, client satisfaction is at the core of every successful firm. Developing a client survey that asks clients key questions after each engagement can provide critical data on what firms are doing well and what can be improved. Tracking client satisfaction KPIs can help firms identify problem areas – where additional training may be needed, improve response time to client requests, etc. These KPIs can also identify areas of strength that can be used to retain clients and attract new ones.
This information can help with marketing, improving firm processes, and with client retention. Clients often value being asked about their experience and surveys can build and enhance relationships between the client and the firm.
Measure your firm internal financials
The first data that typically comes to mind when discussing KPIs is financial data with good reason. Law firms have a lot of financial data about their relationships with clients that can be turned into trackable KPIs without a lot of effort. The natural starting place is developing KPIs that track revenue, expenses, balances in the firm operating and trust accounts, accounts receivable, and overdue accounts receivable. Having all of this data in an easy to access location gives managing lawyers a clear picture of how the firm is operating and can help anticipate future decisions to be made.
Many firms like to use dashboards to present this data in a clear, clean, consistent manner. Tools like Accurate Legal Billing provide managing lawyers with one stop for accessing and parsing this data. Accurate Legal Billing allows managing lawyers to dive into their firm’s financials to get a clear picture of things like what types of work revenue is coming from and how alternative billing arrangements are impacting the firm’s profits. These KPIs will drive decision-making and can have a direct impact on firm profitability. Using ALB to integrate firm billing, collections, and KPI analysis keeps these processes simple for lawyers, reducing the time spent on these tasks, freeing up time for other purposes.
Measure your matters
Advanced firms are able to develop KPIs that can dive down to the individual matter level providing deep insight into firm performance. Using ALB, firms can quickly analyze hours spent on different types of matters to measure attorney time spent, profitability of matters, and the possibility for follow-on work or cross-selling of work for to the client. Firms can see what types of matters provide higher profit margins, where they are performing well for clients, and lines of work that may not be performing as well as others. From this specific data, firm management can make smart, business-focused decisions about marketing choices, client care needs, hiring and promotion of attorneys and other employees, internal training needs, among other things. While it might take significant time to set up systems to track matter-specific data using spreadsheets or other methods, ALB offers firms the ability to track and use this data out of the box, adding value to the law firm from day one.
Using what you measure
Once firms start measuring internal data using KPIs, it is possible to move to the second Peter Drucker saying about improving on what you measure. Law firms are by their nature data rich environments. The key is to find a way to tap that data using a tool like ALB. Once made digestible, law firm data can provide all the most important information needed by law firm managers to manage their firm in the competitive legal services industry of today. Whether starting small with client satisfaction surveys or firm financial data or launching a comprehensive analysis of matter specific data, ALB is a law firm-focused tool designed to help firms manage their billing and financial data in a seamless way. Law firm finances are not as simple as they may seem and having a powerful tool to help manage the financials while lawyers focus on what they are trained to do – practice law – can be the missing piece needed to help a law firm grow.
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