Remember this: your law firm is a business. Every law firm owner or managing partner must measure their firm’s pulse. How effectively are you monitoring what’s working and what isn’t? Can legal case management software really provide useful profitability forecasts and firm performance reports? Key performance indicators (KPIs) offer a valuable way to track your firm’s progress towards its goals. Law firm KPIs show that success is less about time spent practising law and more about how productive and profitable that time is.
Why is it important to track law firm KPIs?
KPIs are more than just a business buzzword. Law firm KPIs are measurable values that indicate how effectively your firm is meeting its targets, from website traffic to revenue collected. Here’s why tracking these metrics is essential:
- Visualise your performance trends
Are you assessing last month’s performance against the previous month, last year, and the year before that?
- Improved accountability
When your staff knows productivity and finances are monitored, they are more likely to stay focused.
- Better predictability
Understanding how your firm is performing empowers you to make informed decisions about marketing, hiring, and co-counsel opportunities, knowing exactly where you’ll be at the year’s end.
Whether you call them KPIs, metrics, or business intelligence, measuring your firm’s performance enables you to make data-driven decisions that enhance client acquisition, satisfaction, and profitability.
Small law firm objectives & goals
KPIs measure how well your law firm achieves its objectives and goals. Begin by clarifying your firm’s goals, whether they include client intake, client satisfaction, billable hours, or revenue. Your objectives will vary based on your practice area, firm size, and values. Here are some goals to consider:
- Retain [X]% of new clients monthly, quarterly, or annually.
- Increase monthly/quarterly/yearly revenue by £[amount] or [X]%.
- Improve actual revenue collected each month/quarter/year by [X]%.
- Identify the most profitable practice areas each month/quarter/year.
- Recognise the most effective referral sources for new clients.
Set yourself up for success using the SMART framework: Specific, Measurable, Achievable, Relevant, and Timely.
Data is king
Accurate, complete, and timely data is foundational to your law firm KPIs. Without good data, your insights will be unreliable. Start by locating where your data is held and determine the key data points to collect.
What law firm data to track
New matters
New client acquisition is essential for your business. Track the number of new clients, cases, and matters you create each week to measure growth.
Matter details
When a new client retains your firm, gather key details for KPI purposes:
- Source of referral: Ask how the client found you (website, advertisement, referral). This information helps evaluate your marketing effectiveness.
- Matter type: Record the type of matter to identify which legal services are most profitable.
- Billing details: Identify the responsible solicitor and fee structure (hourly, flat/fixed, or contingency) to assess profitability.
Collecting this information will help you focus your KPIs on the sources of new business, enabling you to evaluate the profitability of different matters.
Legal time and activity tracking
Accurate time tracking is crucial for determining profitability, whether you bill hourly or use a flat fee. Knowing how much time you spend on each case helps you evaluate whether your pricing is sustainable.
If you charge hourly, track all your time to invoice clients accurately. For flat or fixed fees, monitor your time to ensure profitability. Contingency cases also require tracking to evaluate profitability and support fee applications if necessary.
Best practice is to track time contemporaneously, recording your time and activities as they happen. This reduces the risk of inaccuracies when reconstructing time later.
Determining staff costs
To assess profitability, calculate your staff costs. This includes salaries, benefits, and other fixed costs. For example, an associate solicitor with a £100,000 salary has an hourly cost of approximately £48.08 based on a 40-hour workweek. Accurately determining these costs helps you evaluate your profit per hour billed to clients.
Revenue billed by matter
Track how much you bill clients to understand billable work and identify active matters. This data is essential for assessing profit potential and realisation.
Revenue collected by matter (realisation)
Realisation is calculated by dividing the revenue collected by the revenue billed. Understanding this metric will guide you on invoicing frequency and payment options, helping ensure timely payments from clients.
Compile your data
Once you’ve determined your data collection methods, compile it for analysis. You can use a spreadsheet (CSV or Excel format) for easy data management. Look for integrated solutions to minimise manual data entry, as redundant tasks can hinder efficiency.
Smokeball’s legal practice management software automatically tracks time and activities associated with each matter, simplifying the process and freeing up time for client work.
Business metrics: Law firm KPIs to track
Client-related KPIs
Track KPIs to assess client profitability:
- Average revenue per client
- Number of solicitors representing each client
- Average length of client representation
- Client retention rates
- Client acquisition metrics (monthly, quarterly, annually)
- Client satisfaction and feedback
New matter KPIs
Monitor new matter creation weekly and monthly. Track how many new files are created over a given period to identify trends and evaluate your firm’s performance.
New matters by practice areas
Dig deeper into the types of matters being created. This insight is crucial for general practices to allocate marketing resources effectively. Use this data to make informed decisions rather than relying on instinct.
