Law Firm Financial Metrics: Analyze the Growth of Your Firm
By Adrian Aguilera
Measuring the performance of your business is pivotal toward law firm profitability and operational health. With law firm financial metrics, you can efficiently plan, execute, and measure the success and pain points of your firm’s services. It starts with setting the right key performance indicators (KPIs), so you can make intelligent, data-driven choices.
This post will explore why financial metrics are important for profitability analysis and share some of the best legal metrics your law firm should implement.
Why are Financial Metrics Important to Law Firms?
KPIs for law firms are the most direct and effective way to analyze your firm’s performance. And data does not lie. With the right KPIs in place, you can measure your firm’s marketing success, client conversions, and the productivity of each attorney. Law firm KPIs will help you discover what works well and where changes or improvements are needed.
What are Key Financial Metrics for Law Firms?
Company Financial Metrics
Let’s start with profitability and margins. Consider company legal metrics as the core of your business. You’ll want to set KPIs that measure overall law firm profitability and the cost of running your firm.
These metrics determine how well your team makes money as a group. These metrics can be used for setting projections and monthly revenue targets (as goals). Revenue KPIs can include:
- Total monthly revenue billed and collected
- Total monthly revenue per matter and employee
- Projected annual revenue
Debt and outstanding balance KPIs
In addition to revenue, you need a strategy for handling overall debt and aging invoices. Set monthly targets for debt collection as a road map for your team. These KPIs can include:
- Total firm debt
- Outstanding accounts receivable (AR) balances (with aging)
What is your current billing rate and fees? Billing KPIs ensure that your firm’s prices are fair and profitable in your area of practice and location. These KPIs can include:
- Operating account balances
- Billing rate
- Fees per matter and new matters
Determine if your firm’s overhead is draining your firm’s revenue. Overhead KPIs help determine whether the tools, office space, and salaries contribute to productivity and profit. These KPIs can include:
- Monthly cost and net overhead (supplies, technology, etc.)
- Cost of annual staff and attorney salaries
- Cost of current physical office space
Finally, consider MyCase financial reporting. This tool can boost company metrics with reports on aging invoices, insight on payments billed and collected, and the ability to track active payment plans.
Attorney Productivity and Performance Metrics
Next, you’ll want to measure the individual work of the attorneys in your firm. This is the lifeblood of your business. When tracking your team’s productivity, use it to improve processes and not solely on criticism. This ensures that individual members of your squad are as efficient and motivated as possible.
This KPI identifies the amount of time spent on billable client work. Calculate utilization rate by dividing each attorney’s billable hours by total hours worked. For example, if an attorney works 2,500 hours and bills for 1,800 hours, then they have a 72% utilization rate. The closer it is to 100%, the greater the performance. If the utilization rate is low, this can unveil administrative work that consumes too much time.
This second productivity metric measures the number of recorded hours compared to fees collected. This is calculated by dividing recorded payments by fees that are collected. For instance, if an attorney records 2,000 hours and clients paid 1,200 of the hours, the realization rate is 60%. A percentage closer to 100% indicates better performance. If the realization rate is low, this can uncover issues related to client communication, invoicing, and/or payments.
Additional attorney performance KPIs
These numbers can contribute to each attorney’s reviews/goals. Performance KPIs can include:
- Monthly number of new matters/cases opened per attorney
- Monthly number of expenses per attorney
- Monthly average billing rate per attorney
- Monthly number of referrals per attorney
- Monthly number of legal assistant billable hours
With MyCase, you can improve the profitability of your team with software that easily and efficiently tracks billable time, converts new leads, and automates workflows. Your team can also improve client lead and communication with MyCase client relationship management tools.
Case Management and Client Satisfaction Metrics
Incorporate law firm financial metrics for determining how well you’re servicing each client during open matters. Case management law firm KPIs can help your team determine if each matter is handled effectively. For example, these numbers can indicate whether each attorney handles too much or too few open cases.
Case management KPIs can include:
- Total number of cases/matters settled
- Total number of matters per client
- Average number of attorneys per client
The satisfaction of your clients is also an essential element during your firm’s profitability analysis. These legal metrics can help set company goals for enhancing client service.
Client satisfaction KPIs can include:
- Total client referrals
- Total number of positive (public) client reviews
- Total client retention rates
Lastly, you’ll want to know how well your marketing efforts are performing. Marketing KPIs for law firms showcase where your firm’s money is well spent.
Marketing KPIs can include:
- Traffic and conversions from organic blog/SEO content
- Traffic and conversions from paid Google, social, and/or print ads
- Traffic, click-through-rate (CTR), and traffic from email marketing
- Conversion performance of your firm’s website
As a rule of thumb, ask all new client leads and conversions (in-person or via a survey) on how they heard about your firm. This feedback can determine how well each marketing medium is performing. Also, consider MyCase web design for law firms. MyCase can extend the presence and reach of your firm’s website with tailored design and one-on-one customer support.
Summary of Law Firm Metrics
KPIs for law firms are essential in maximizing your law firm’s productivity and revenue. Measuring the performance of your overall firm’s profit/costs, attorney’s work output, client satisfaction, and marketing efforts set the stage for boosting your firm’s financial and operational health.
In summary, KPIs for law firms uncover areas of your business and staff workload that are profitable or need improvement. Case analytics software can help with tools that quickly set, measure, and evaluate your law firm’s KPIs and goals.
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