Running a successful law firm and being a good lawyer shouldn’t be incongruous, but to achieve these goals you need to identify – and implement – the best tools at your disposal.
In business, data is power, whether that’s data on your clients, the market, legal trends, your staff, performance and finances. Having visibility of the key areas of your firm will provide you the opportunity to make smarter, data-driven decisions, and understanding your law firm’s data puts you in control while providing insight to trends, highlighting problems, and implementing solutions. Having the insight to your firm’s performance will have a major impact on profitability, growth, and success.
Before we look at the reports that you should implement within your firm, here is a quick overview on why you should set and monitor KPIs (Key Performance Indicators).
What are law firm KPIs?
Law firm KPIs are a business metric. They are quantifiable values that measure the success of a firm’s efforts in achieving their specific goals. This could be to increase revenue, clients, and referrers, and to improve profitability, customer retention and staff satisfaction.
The KPIs you measure will depend on your individual goals, so these need to be mapped out first to determine how you’ll measure their success. These values are then measured regularly throughout a set period to determine the likelihood of success, monitor ongoing performance and to implement course correction.
When implemented properly, KPIs have many benefits, which include providing insight, accountability, and scalability across your firm.
Do you track the right data?
You can only measure what you track, so take stock of what your processes allow you to monitor. Does your practice management system (PMS) provide you with the right data? Typically, if the data is inputted, you can extract it, especially if your PMS provides business intelligence tools. Take stock of what you do measure to make sure your KPIs are possible with the tech you have in place. Integrated systems will make pulling the data more streamlined and accurate; disparate systems could mean out of date, error-prone data.
KPIs can be presented in dashboards or reports. Comprehensive case management solutions also allow you to design, configure and schedule reports so you and your team will always have the data you need, when you need it.
This is the most crucial report for forecasting future budgets and staffing decisions. If you want to know how to grow, you’ll need to be able to analyse your billing.
Set up monthly and year-to-date reports showcasing actual vs target billing figures. With that base report, show variance by individual Fee Earner and department so you know your star performers. It’s also useful to show comparison to last year’s figures over the same period so you know if you’re heading for growth or need to make adjustments.
Having these details will help measure ongoing performance but will also provide data-driven forecasts on fees in upcoming months. This helps you better align staffing resource, annual leave, growth opportunities and adjust budgets.
Time tracking analysis
Accurate time tracking equals accurate billable time. Understanding your time tracking will help you understand how to improve, and ensure your staff are meeting the needs of the business and using your software solution to correctly record their hours.
Make sure the report shows recorded time by Fee Earner and department, including non-chargeable and chargeable time, plus equivalent work in progress value. Set the report up so you can see any variance in time record targets.
A detailed time tracking report will allow you to compare the work you’ve invoiced for vs the actual work performed – useful for understanding the profitability of a flat fee. It will also determine the profitability of an individual fee earner, department, or work area so you can choose to relocate funds and resource if necessary.
With visibility of the facts, you can make smarter decisions on price increases, resource allocation, department growth or closure and time spent on marketing and business development. The data will also allow you to determine if the billing cycle needs to be adjusted and if the firm would benefit from interim bills or charges at different stages of transactions.
Understanding the number of enquiries you receive, and your conversion rates, put you in control of growing and progressing your firm.
Ensure you have monthly reports and real-time dashboards on the amount of new matters vs your target by Fee Earner and department. Include comparisons to last year’s figures to understand trends and improve forecasting.
Enquiry conversion rates
On top of the new matter reports, ensure you’re also monitoring the number of new enquiries you’ve had and the conversion rate from enquiry to instruction. Without these initial enquiry figures you won’t have the whole picture of how successful your firm is at winning new business.
Drilling down further, you should also monitor where the enquiry came from (website, phone, email) and the conversion rates against those channels. With this analysis you’ll be able to focus resource on the practice areas that are successful and profitable, on specific channels of marketing and into business development to effectively grow your firm.
Understanding your clients is just as important as understanding your financials. Knowing the behavioural trends of your typical and ideal clients will give you the advantage of exceeding their expectations and attracting new business.
Identifying your ideal client helps you to focus on winning more clients like them, as usually they’ll provide a more profitable return and easier experience. Using reports such as ‘top clients by fee income’, or ‘average payment days per clients and outstanding bills’ will help build the picture of who or what area of work requires more resource, and where you want to allocate spend for marketing and sales efforts.
The analysis will ultimately help you understand and serve your existing clients better so you can provide them with a first-class service while boosting the firm’s reputation. This in turn helps you to attract new clients.
Your biggest cash flow challenge is late-paying clients. Keeping a tight track of your aged debt and decreasing the length of time for overdue payments will help your firm thrive. With the right data you can make smarter decisions on credit control policies, spot trends or challenging clients early and identify staff training needs for efficient money collection.
Set up reports for aged bills by time overdue (30-60 days, 61-90 days etc) and then by Fee Earner, department, and work type. The data will highlight the key problem areas and where to implement solutions first, but crucially will allow you to identify trends. Consider whether there are specific Fee Earners or departments that are creating cash flow issues, or specific clients who need a stricter billing policy to avoid continuing to carry out work without payment.
Once your initial analysis is complete a regular scheduled report will allow you to scrutinise your credit control efforts and continue to make further improvements.
Improving cash flow is crucial to surviving future challenges and, wherever possible, you should bill disbursements immediately to help retain operational capital for your firm whilst keeping track of unbilled disbursements. With out-of-control client debt, it can be hard to remain resilient in facing unknown challenges.
Ensure the report details disbursements per Fee Earner and department that are both yet to be billed for and yet to be paid for by the client.
With the individual elements that dramatically affect cash flow reported on, it is important Senior Partners also have a top-level cash flow report to provide the full picture of your firm’s performance.
The report should detail actual vs forecasted cashflow for each income and expense nominal, showing an opening and closing bank balance for the year.
The data will help your firm make accurate predictions of its financial stability and effectively forecast for difficult times. It will also highlight where the firm has under or overspent so actions can be taken to reallocate funds or enforce limits.
Reporting on dormant matters can help improve the efficiencies of your firm. The report should identify matters that are inactive or without financial postings for a determined period.
This will highlight cases that need archiving or additional attention to help with progression. Understanding what is dormant and outstanding will also aid compliance if your firm is accredited by CQS or Lexcel. Regardless of compliance, it is good practice to ensure matters are effectively managed and filed.
Client money retention
It’s important to identify matters where money is being held for long periods of time. Keeping track of these matters ensures you can monitor cases and act when you need to. This will also aid compliance to SRA accounts rules ensuring your firm is risk free of errors.
Increasing visibility and control for your firm
Increasing cashflow, improving profitability and winning new clients should be at the top of every managing partners’ to-do list. According to The Law Society’s Law Management Section Financial Benchmarking Survey, firms are concerned about cashflow as lockdowns are lifted and also about a significantly reduced number of new matters in 2021. Therefore, gaining visibility of your firm’s cashflow to reduce lock up days, as well as improving on profitability and understanding how you attract and win new clients, are crucial to driving your firm forward.
Data-driven insights monitored against set KPIs is the only way to ensure you can navigate the future and combat those uncertainties. Using a practice management system that provides intuitive business intelligence, smart reporting and real-time dashboards will give your firm the visibility it needs, so you can focus on making the right decisions, not collating the right data.
Craig Matthews is CEO of Osprey Approach, which provides cloud-based, case management software to high-street and multi-branch law firms. With over 30 years’ experience in the legal software sector, our system, implementation, and support services are designed to help make running a law firm easier. www.ospreyapproach.com