Smokeball traveled west last week for two lunch sessions with California attorneys on key performance indicators (KPIs) and how to utilize them to make a small law firm more profitable. Smokeball hosted attorneys at Fleming’s Steakhouses in San Diego and Los Angeles to highlight main law firm KPI and profitability ideas and goals. The presentation, “Using KPIs to Increase Law Firm Profitability”, was delivered by Josh Taylor, an attorney and Smokeball’s Legal Technology Content Marketing Manager.
Smokeball’s belief and emphasis around law firm KPIs was born from a continuous observation of small law firms not knowing where to look to chart their next steps and know their “health”. Most small firm owners would like to make more money and/or work less, of course, but the majority do not know how to accomplish those goals. Data and planning can help immensely, so let’s learn how using KPIs to increase law firm profitability isn’t as hard as you think.
Data-Driven Decision Making Tips for Small Law Firms
Because small law firm owners are tasked with being every member of the C-suite on top of being a more-than-full-time attorney, data and time spent analyzing that data must be focused. Simply judging profitability by “feel” or by how busy you are is not a viable business strategy. The point is to put some substantive numbers behind lawyers as business owners/executives.
There are five main ways to increase law firm profitability:
- Increasing volume of work
- Increasing price
- Reducing leakage (discounts and write-offs)
- Reducing costs
- Focusing on the best work
Within these five ways to increase profitability, certain KPIs should be put into place to ensure the goal is being met and to see red flags well ahead of the time to truly worry.
Consciously-Constructed KPIs Can Help Focus Your Firm
Certain KPIs that can be used to achieve ultimate goals of making more money, growing the firm, and working less (which is considered profit in itself). The aforementioned five ways to increase profitability work towards these broad goals, and within those, KPIs deliver the markers to let you know how it’s going. Of course, there are some KPIs all law firms should know, and all KPIs and goals can be mixed and matched to form the right potion for your firm to increase health and profit.
To increase the volume of work, one of the most important KPIs is tracking and increasing the number of new leads. Relatedly, a firm concerned with increasing volume of work should be tracking conversion rates, i.e., how many inquiries into the firm are converted to paying clients. Another necessary KPI would be tracking and increasing new matters over a certain period of time. Within this realm, it is immensely helpful to track referral sources, who is giving you more work, and who is giving you less (warning sign!).
Increasing your price is perhaps the most touchy goal, as it requires tough conversations with clients, both new and old. If you have good data to back up your claim that you are worth more money, the conversation might get easier. With KPIs built around time spent and firm money spent on certain types of matters, you will have the data to say, “I’m worth more than what I’m currently charging when I do this kind of work.” This is they type of law firm insights that can transform how your run your business.
The discussion of reducing leakage because most clients expect lawyers to discount or write off certain amounts of time. This expectation basically means that a lawyer is contributing valuable time to the client at the firm’s expense for free. This free time is something the lawyer can never get back. This expectation must be adjusted and re-framed in order to become more profitable. To discount less, make sure bills go out early and often to lessen the blow of a giant yearly invoice that requires discounting to ease the burden. Harness the power of legal practice management software that has simple legal billing software and online payment options included. Then ensure you have KPIs around billing, discounting, and collecting. Smokeball can even give you the realization rates of these numbers.
Saving costs is a terrific way to increase law firm profitability overnight. You need to ask whether you are providing your services in the most efficient way for your firm while still providing top service to your clients. Often, the answer is “no”. Are you still printing everything out? That costs your firm money. Are you disorganized? That costs money in paying someone for the extra 5 minutes it takes to find a document — something a legal document management system can automate. Are you doing work that other less expensive employees could do? That costs time and money where you could be billing top dollar to another client. Build KPIs around reducing your costs, and the benefits will be felt almost immediately.
Focusing on the best work is key to making any practice more profitable. If “busy-ness” is the only indication you use to track success, however, you will have no idea which matters lose you money or waste your time. With profitability numbers and KPIs on matter types, you can see what matters you should take more of and which should fall out of favor at your firm. With the best practice management software for lawyers, both time-based and flat-fee/contingency firms can track these because Smokeball tracks everything you do and for how long. It saves everything in one system and you get a clear picture of what matters are in the red and which are in the black.
Smokeball Has KPI Solutions Built In!
There are various Smokeball tools that provide KPI information directly from the Smokeball system without additional spreadsheets, graphs, and time spent to create them.
Smokeball’s Firm Insights feature provides dashboards on many KPIs like new matters and referrers, just to name a few. It also provides realization, utilization, and profitability analysis on a per-matter and per- matter-type basis. This information is integral to make sure a firm continues taking the best work (i.e., the best practice area types).
And the automatic legal timekeeping software features tell you exactly how much time is spent in the Smokeball system, right down to the amount of time spent in particular matters on particular documents and emails. This is the most powerful feature on the market today, as it gives you transparency and knowledge about your most valuable asset as a law firm: time. Most KPIs require analysis of time, so you must be aware of how your time and your staff’s time is spent each day.
In all, running a firm takes data and set times to review that data. There is no other way to see opportunities and warnings. To become a more profitable firm, you must use KPIs as road markers for success and use technology to automate (aka save time) as much as possible.
View the entire presentation for “Using KPIs to Increase Law Firm Profitability” here.
To learn why attorneys who use Smokeball increase law firm profitability by more than 30% on average, schedule your free demo and see for yourself.