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.
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.
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.
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.