The Bigger Picture
But what is the “success” you should be aiming for? There are many definitions of success, and how you define it will affect what measurement you will use. Based on my experience helping small law firms achieve growth, “success” should be measured by your client cycle. Clients are the lifeblood of your business, and once you lose them, no amount of metrics would help you get back on your feet.
When a new client walks in your office door, you should see a dozen more clients, a hundred, and so much more. This concept is known as the Perfect Client Life Cycle, and your KPI targets should hinge on this cycle. If you want an in-depth discussion on seven key performance indicators that can ensure your practice is headed in the direction you want, download a free copy of the Attorney’s Guide to Personal and Financial Freedom book.
Key Performance Indicators Measure Your Client Cycle
Law firms measure their progress in order to adjust their strategic plans as needed. Lawyers are experts on the practice of law, but tracking law firm success using key metrics is a different thing, one that is not taught in medical school.
Law firm KPI metrics help you track your business goals by providing answers to questions like which part of the client life cycle should you work on to improve your client count (and net profit)? Which marketing campaign converts more prospects to leads? How is the client or customer satisfaction? These measures are important because they will affect your revenues, growth, and overall success.
KPIs help you make informed decisions
When you reach the stage where you feel ready to grow your practice or improve systems in your firm, KPIs will help you make decisions that are driven by data instead of mere speculations.
Aside from gauging performance, KPI measures the level of accountability within your management. They also grant you the ability to predict results in the future based on specific metrics you’ve collected over time, such as which office generates the highest revenue or which practice area where new clients are coming from.
There are many different types of KPIs to measure and these are usually unique to your practice or law firm size. The following list is just a few examples.
Marketing KPIs. Use any of these to understand your current monetary situation: ad spend, the number of marketing campaigns, ratio of marketing spend to total fees billed, website traffic, conversion rate, email marketing performance.
Client and matter development KPIs. These will help you understand your market base: cases closed, client growth rate, average earning per client, practice areas per client, lawyer to client ratio, or new matters created on a weekly or monthly basis. One good practice is to track new matters by practice areas so you can see a trend on where clients are coming from and where you should direct your marketing.
Client satisfaction KPIs. You can measure and track the number of referrals, client satisfaction scores, net promoter score, average stars in reviews, or client retention rates
metrics to help you improve your legal services based on feedback and testimonials:
Productivity KPIs. Set up success metrics to know how much time is spent doing valuable work. Some examples are total billable hours and the number of unbilled days.
Individual Performance KPIs. While previous growth indicators look at the overall success of your law firm, you will also need to track the performance of your individual team members. To do so, examine your monthly expenses, average bill and work rate, partner hours percentage, number of cases opened, billable hours per legal assistant or staff, or number of tasks completed.
Financial KPI. Profitability margins are essential in measuring your law firm’s success or failure. Set a performance-indicator to capture data on your total sales, return on investment, billed revenue vs. collected revenue, amount billed as a proportion to the number of billable hours worked, collection rate, firm debt (credit lines, loans, etc.), projected annual revenue, sales revenue, revenue growth, balance in your operating account, outstanding accounts receivable, age of accounts receivable, net overhead, or revenue per employee.
Lead Analysis KPI. Check which channels bring the highest number of leads by recording how visitors or prospective clients find your firm. This can help pinpoint which referral sources are the most effective.
How to Implement Law Firm KPIs
After going through the list above and getting ideas on which key indicators you are already tracking and will still need to track, how do you make sure that these metrics will work to your advantage? There are many models that help to calculate results and prepare KPI reports.
One of the management models followed by businesses is the “Plan-Do-Check-Act.” Start by planning to gather data for which KPIs are unique to your firm. Then, take action by monitoring these, evaluating every so often, and repeating this all over again.
Here are six steps you can follow to have KPIs within your legal practice management:
- Select indicators that are related to your law firm objectives and goals and that support the Perfect Client Life Cycle.
- Set your targets. Your targets should be measurable. If you need certain software or a system to arrive at quantifiable results, then get one.
- Track each KPI regularly. Insights based on KPIs will not show up instantly, which is why you may have to wait certain months before seeing a trend.
- Measure the results. Set a schedule on when to analyze your current progress and report your KPIs based on your schedule.
- Make informed decisions. Always use the information from your law firm’s key performance indicator when making critical decisions.
- Revisit KPIs. You will need to go back again and check if your KPIs remain relevant months or a year after selecting them.
Aside from this model, you can also explore getting a KPI dashboard software to help you visualize the most critical data during KPI reporting season
Law Firm Success Factors
Creating and monitoring KPIs are two ingredients that contribute to a better law firm performance management. By having an indicator and metric to gauge each of the most critical parts of your operation, you can readily see which areas you can improve on and where you should allocate a better portion of your limited budget.
As a small law firm owner and manager, you are responsible for setting specific targets for success and measuring these. Seeing how you are able to keep track of your goals not only provides you with relief but also empowering your team to improve on their performance and help you reach the law firm you envisioned your business to be years from now.
If you are struggling to determine which piece of information you need to keep track of, seek advice from a law firm management consultant Richard James, who can show you how to make your law firm prosperous and predictable.