Ultimate Guide to Small Law Firm KPIs

The Ultimate Guide to Small Law Firm KPIs

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Your small law firm is a business, and every firm owner or managing partner must be able to take the pulse of their business. How do you do this effectively and efficiently? Case legal case management software really provide law firm reports and profitability forecasts? Using KPIs, which stands for Key Performance Indicators, is one way to track your firm’s performance.

KPI is a measurable value that indicates how effectively your law firm is achieving its goals. Other synonyms for KPIs would be metrics and business intelligence. No matter what you call it, the measurement of your firm’s performance will enhance or empower you to make informed data-driven decision to drive greater success and profitability.

Small Law Firm Objectives & Goals

KPIs measures how effectively your small law firm is achieving its objectives and goals. Therefore, the logical step is to figure out what your firm’s objectives and goals are. The objectives or goals you set for your firm will depend on your practice area, firm size, location, and other personal factors. How you define success will also affect your objectives.

Here are a few ideas to establish your firm’s objectives or goals:

  • Retain x new clients each month, quarter or year
  • Increase revenue billed each month/quarter/year by $x.xx or %
  • Increase revenue collected (realization) each month/quarter/year by %
  • Identify the most profitable practice areas each month/quarter/year
  • Identify the most effective referral sources for new clients

While you are drafting your objectives and goals, it may be helpful for you to use the SMART system. SMART stands for Specific, Measurable, Achievable, Relevant, and Timely.

  • Specific: Your objectives or goals should be clearly defined. Every member of the firm should know that you want to achieve. This is the what, why, and how of your objectives.
  • Measurable: Your objective must be quantifiable. Without a measurable objective or goal, you won’t know the progress or when you have achieved it.
  • Achievable: Objectives and goals should be challenging and stretch you to achieve them, but don’t not unrealistically beyond your reach. When you set an “achievable” goal, consider whether you have the financial and human resources to achieve them.
  • Relevant: Is your objective or goal consistent with your practice? Does the objective or goal help the entire firm?.
  • Timely: Every objective or goal must have a target date. This will help you prioritize the tasks you need to complete to accomplish your objective or goal.

Once you have your objectives or goals established, don’t be afraid to make changes or adjust them as you go. The objectives or goals you establish will help you create an action plan to achieve them, but they are not written in stone. Give yourself flexibility and stay focused on what you set out to achieve.

Data is King

Data is the foundation of all your KPIs. Without data you can’t measure anything.

Also, you don’t want just any data, you must have accurate, complete, and timely data. If you’ve heard of the phrase “garbage in, garbage out” that is what will happen with your KPIs without good data.

The first step in getting KPIs is to get the data. Let me warn you that data gathering is the most difficult and arduous task of getting KPIs. Depending on the type of software, system or process your firm uses, you will discover that your data is all over the place. Your data may be handwritten, recorded on spreadsheets or in other document formats. This is where most firm owners and partners get frustrated and question whether it’s worth the trouble. However, don’t let the grunt work discourage you. The data you gather will pay off in the end.

Examine where your data lives. It may be helpful for you to follow the lifecycle of a case, from beginning to end, to determine the number of different systems you may be using in your office. For example, if you don’t have a case management system, how do you keep track of your files? Do you use some sort of internal reference numbering system for your files? For timekeeping, do you use software or a manual system? For billing, are you able to extract data from the software you use or do you have to ask your accountant to pull the data for you?

Once you have figured out where your data lives, the next step is to determine what data to collect.

What Law Firm Data to Collect

New Matters

Without new clients and new matters, you won’t have a business. So, one basic KPI everyone should have is how many new cases/matters you are creating every week.

No matter if you use legal practice management software or use paper files, an internal reference numbering system will help you keep track of your files. You can use an internal referencing system such as this: YYYY – MM – 0001. This will help you track the year and month the matter was created and allow you to keep count of how many matters you created in each month.

Matter Details

Whenever a new client retains your firm, there are several key details you should collect for KPI purposes.

  • How did the client find you? Ask the client how they found you. Did they see your law firm website, an ad or client referral? You can get even more granular by asking why they chose your firm over another. This data will help you understand the effectiveness of your marketing channels.
  • Matter type. Record the type of matter they are seeking help with. Is it a personal injury case, real estate matter, divorce or business incorporation? Create categories of matter types so that you can track every client matter. This is helpful for you to track the type of cases your firm is attracting and if certain matter types are more profitable than others.
  • Billing Details. Be able to identify who the responsible attorney is on the case. Also, identify the fee type – is it hourly, flat/fixed or contingency. This will help you when compiling profitability information.

By collecting this additional information with matter management software, you will be able to focus your KPIs and metrics on where your new business is coming from. With some granular data, you will be able to assess whether divorce cases are more profitable over real estate matters. You may find that you can make more money by charging a flat/fixed fee for certain matters and others charging hourly.

Legal Time & Activity Tracking

As you work on client matters, you will need to track how much time you are spending on each case. This is the most important data you can record to get a complete and accurate picture of your firm’s profitability. Regardless of whether you bill hourly, fixed/flat or on contingency fee basis, you need to know how much time you spend to determine your profitability.

If you charge a client on an hourly basis, it’s self explanatory that you would track all your time. Tracking time is how you invoice your client. However, if you are like most firms, you don’t charge for all of your time because you haven’t kept track of all of your time. Also, you may not charge the client for time your paralegal or assistant spends on the matter. Having accurate data of how much time you spend on a case will lead you to an accurate profitability rate.

If you charge a client on a fixed or flat fee basis, tracking the amount of time you spend on the matter is critical to your profitability. How do you know whether you are spending too much time on a matter? At what point are you no longer profitable? Charging a flat or fixed fee does not eliminate the need to record your time.

If you charge a client on contingency basis, tracking time is still necessary. Similar to flat or fixed fee, you want to analyze how much time was spent on a matter and whether the contingency fee was enough for you to be profitable. Also, if you ever must file for fees, an accurate and complete time sheet will provide the court the evidence it needs to decide in your favor.

When tracking your time and activities, the best practice is to track your time and activities contemporaneously. Contemporaneous time and activity tracking means that you are recording the time, activity and matter as you are completing the task. Unfortunately, instead of using automatic lawyer time tracking software, many attorneys do not follow this best practice and “reconstruct” their time by going back at the end of the week and guessing what they completed for the matter. Inevitably, you will fail to charge for time spent or overcharge for tasks that you completed.

As stated above, this is the most important data to capture. Without this data, you will not have an accurate calculation of profits. Time and activity data will reveal where you can make the greatest improvement in your firm’s operation. Time is money and this is the data you need to measure productivity.

Determining Staff Costs

Determining profitability requires you to calculate how much staff time costs. It can simply be the hourly calculation of a staff member’s salary. You can also get detailed and incorporate costs of benefits, vacation, and other fixed costs into a staff member’s hourly cost.

For example, if an associate attorney salary is $100,000.00, the hourly cost would be $48.08 per hour based on a 40 hour work week for 52 weeks (salary / 2080 hours). This simple calculation does not figure in benefits, vacation, sick days, and other fixed expenses. Adding 10% for other costs is a good start, but you can get the help of your accountant to get a more accurate figure depending on your jurisdiction and tax rates. By having a staff member’s cost, you can determine how much of a profit you are making on each hour charged to a client and costs involved for staff members you do not charge for.

Revenue Billed by Matter

Unless you are purely operating on contingency fees, you should be tracking how much you are billing your clients. Revenue billed by matter offers you a view into how much billable work you are doing and which matters are most active. You will use this data to determine your profit potential and realization.

Revenue Collected by Matter (Realization)

Revenue collected by matter is a percentage number that is calculated from the revenue you collected on the matter divided by the revenue billed. It doesn’t matter how much you bill the client if you don’t collect. This data will also tell you if you should be invoicing client more often, offer payment plans, or accept different payment options. Realization data will allow you to consider different payment strategies so you can get paid as much as possible – and as quickly as possible.

  • Specific: Your objectives or goals should be clearly defined. Every member of the firm should know that you want to achieve. This is the what, why, and how of your objectives.
  • Measurable: Your objective must be quantifiable. Without a measurable objective or goal, you won’t know the progress or when you have achieved it.
  • Achievable: Objectives and goals should be challenging and stretch you to achieve them, but don’t not unrealistically beyond your reach. When you set an “achievable” goal, consider whether you have the financial and human resources to achieve them.
  • Relevant: Is your objective or goal consistent with your practice? Does the objective or goal help the entire firm?.
  • Timely: Every objective or goal must have a target date. This will help you prioritize the tasks you need to complete to accomplish your objective or goal.

Once you have your objectives or goals established, don’t be afraid to make changes or adjust them as you go. The objectives or goals you establish will help you create an action plan to achieve them, but they are not written in stone. Give yourself flexibility and stay focused on what you set out to achieve.

Compile Your Data

Once you have evaluated where and how your data is collected, the next step is to compile it for analysis.

The easiest format for you to compile your data is in a spreadsheet, such as a comma separate value (csv) file type or Excel (xls) file type. This format will allow you to compile the data together in a spreadsheet where its easiest to work with. Most system and software will allow you to export data in .csv or .xls format.

As you work to collect and compile the data, you will find yourself searching for solutions that are integrated so that you don’t have to manually collect or compile data. The ROI (return on investment) of technology comes from the elimination of redundant data entry. Therefore, if you are using a legal practice management software, make sure it has the capability to track time and activities for each matter. Without this capability, you will be entering data multiple times and must use third-party software to collect it.

With Smokeball, you don’t have to worry about gathering data and compiling it. Smokeball is the first and only legal practice management software that automatically tracks your time and activities. By working from Smokeball, everything you do is tracked and automatically associated to the matter. This eliminates the need to manually record data. This mean more time to devote to client matters and as a result, greater profits you can collect directly with your integrated legal billing software.

KPIs to Track

Now that you have the data, let’s look at how to analyze the data and what they mean.

New Matter KPIs

Every law firm needs clients to thrive and you should be tracking how many new matters you created during a week and month to stay on top of your firm’s performance. To track this KPI, you need to keep track of how many new files you created. This is simply a sum of all the new matters you created during the time period.

New Matters by Week, Month and Year

As you continue to compile new matter data, you will be able to use a bar charts to display any trends of your weeks, months and years. This data will help you determine any seasonal trends, marketing effort influences and how your firm is progressing over time.

In this view, you can see how many new matters the firm created in the last 7 days, the count of the current month, and the number of matters created last month. This will give you a quick view of how the firm is performing compared to last month.

As you continue to compile new matter data, you will be able to use a bar charts to display any trends of your weeks, months and years. This data will help you determine any seasonal trends, marketing effort influences and how your firm is progressing over time.

New Matters by Practice Areas

As you continue to track this KPI, you will want to dig deeper and track the type of matters that are being created. This is especially important if you have a general practice. For example, if you see a trend that you are getting more real estate matters over divorce matters, you may want to do more marketing on divorces to increase those matters or focus more on real estate, depending on which matter type is more profitable. This is law firm business intelligence and will help you make data-driven decision instead of using your instincts or a gut-feeling.

If you want to learn more about KPIs and how Smokeball can help you achieve your goals, visit smokeball.com or call us at 855-668-3206.

Lead Analysis KPI

If you kept track of matter details and client details, you can compile the data to get lead analysis. You may be throwing away money if you are not spending your marketing dollars on the right channels. For example, if you recorded how the client found your firm, you can the data in a pie chart to show the percentage distribution of the marketing channels. By tracking this data, you will be able to shift marketing dollars and determine which referral source is most effective.

Fee Insights

Revenue Billed

How much revenue you bill in a time period will provide insight to determine how “busy” you are. This data will also tell you how many hours of your day or staff’s day is devoted to billable vs. non-billable work. You may be spending more time on non-billable administrative tasks than on client matters. Collect and analyze this data in weeks, months, and years.

By tracking the revenue billed by your staff, you are able to see how much work your staff is doing.

Revenue Collected

More important than revenue billed is revenue collected. It doesn’t matter how much you bill if you can’t collect. In the chart below, you are able see the profitability of each matter in a glance and the percentage of realization. The chart also tracks the number of hours, staff cost, revenue billed and the realization rate calculated from the fees collected. You have a quick graphical view of how profitable your matters are. This type of dashboard allows you to take a quick pulse of your firm, instead of laboring over spreadsheets to view the data.

With data to compile the above KPI, you will be able to determine which staff members are most profitable. This comes in handy when reviewing employee performance.

There several other KPIs that will help you monitor the health of the firm and Smokeball offers you the ability to see software usage, profitability by fee earner, and practice area specific KPIs.

Small law firms using Smokeball see a 34% average increase in profitability. You can too!

We offer a lot more than your standard case management software. Request your free demo now to learn how Smokeball will help you:

  • Stay more organized
  • Meet deadlines

  • Access files on the go

  • Get more clients

  • Increase firm profitability

A quick personalized demo with a software advisor is the best way to see the Smokeball difference. If you have any questions, please give us a call at (855) 668-3206.

Small law firms using Smokeball see a 34% average increase in profitability. You can too!

We offer a lot more than your standard case management software. Request your free demo now to learn how Smokeball will help you:

  • Stay organized

  • Meet deadlines

  • Access files on the go

  • Get more clients

  • Increase firm profitability

A 10-minute personalized demo with a software advisor is the best way to learn what Smokeball can do for you. If you have any questions, please give us a call at (855) 668-3206.