Use Business Intelligence for Law Firm Stability and Growth

Post sponsored by Smokeball and written by Josh Taylor, Esq, Account Manager

A question that inevitably arises whenever there is discussion regarding Key Performance Indicators (KPIs) and other “health measurements” within small law firms is “what should I be numerically tracking?”  While the billable hour will likely still rule in litigation-heavy practices, there are other factors that can be considered.  The following financial metrics are terrific health indicators for transactional and corporate firms, but lend superb data tracking ideas to almost every type of law practice:

  • Dormant Client Percentage: the ratio of the number of clients that the firm has not had a new project from in a certain period of time (TBD by the firm) to the entire client base
  • Growth in Top Clients: ratio of fees billed to top X clients (number can be adjusted to size of firm) in the past year to the fees billed to the top X clients in the year before that (are my best clients coming to me more and more as time goes on)
  • Basic Profitability per Matter/Transaction: Flat fee for transaction minus (Hours spent x staff cost per hour)
  • Client Retention: ratio of number of clients billed in the last year to the same clients that had been billed in the year before (can really start the conversation of why people are or aren’t coming back to the firm for more transactional work time after time)
  • Number of Matters Opened: compare year to year or month to month
  • *Client-facing KPI* Value Added for Client: Increase in client profits minus cost of legal services provided by your firm (why would a client come back if what you do doesn’t ever help them do better??)

Besides financial health indicators, KPIs should certainly revolve around ensuring staff is happy and healthy as well.  Workload is important to consider, but “how do I know my staff can or cannot handle more?”  Certainly, you will need something that tracks all activities and all worked hours.  Some case management software and billing technologies are terrific at this.  The resulting reports should indicate, for individual employees, things like hours worked per week and number of files being handled, and this should prompt a conversation about these things with staff members.  The ultimate goal must be to come up with KPIs together that make sense and to ensure the employee feels what they take on is noticed and appreciated.

Another good metric is seeing how quickly clients are responded to by staff in a meaningful way.  If staff is unable to do this well and clients wait long periods of time for responses, there may be an issue of having too much on a particular staff member’s plate (i.e., when the product the client gets suffers, you may be asking a good employee to try handling too much).

Finally, other concrete metrics could revolve around billing clients.  Realization Rate and what causes this rate to drop is important.  Are you writing off time because the wrong person is doing it?  Are you billing inconsistently with client guidelines? Are multiple people billing for the same task?  A KPI here could be to strive for a certain average realization rate, such as bumping a 65% rate to 75% in the next fiscal year.

Interested in learning more? Hear Josh talk about KPIs and business intelligence in the How To… program from 9/12/2017

SMOKEBALL

About Catherine Reach

Catherine Sanders Reach is the Director of Law Practice Management & Technology at the Chicago Bar Association.