In December 2016, I talked with Sam Glover about key performance indicators (KPIs) for small law firms. A KPI is a quantifiable value which shows how well a firm is achieving its key objectives. Most law firms are not using KPIs to manage limited resources or to discover pain points.
In this five-part series, we will examine one KPI in-depth in each part. A spreadsheet is also available for download below to help implement all five KPIs—all with the goal of growing your firm’s revenue and profitability.
New business generation is a significant challenge for many small firms. However, adapting a prospect or sales pipeline approach from outside the law allows lawyers to estimate the future work, plan staffing levels, and adjust client or business development efforts. One caveat is that calculating a firm’s pipeline is an art, not a science, because of the estimates that must be made
The “pipeline” example below is an Excel spreadsheet from my small law KPI book, where we first calculate the value of all the potential work and then weight it to arrive at the Adjusted Value. Some customer relationship management (CRM) systems automatically generate this pipeline, but it’s helpful to understand the theory behind the calculations.
To start, the pipeline in March 2016 has a $ Value of $48,000, which means that if we engaged all those clients, we would need to check if we have enough resources to deliver. Instead, we estimate the work the firm might win which is the Adjusted Value, or $22,625 and use that for planning.
Let’s use Client 3 as an example:
- The $ Value represents the estimated fees to be earned from this type of matter, which are $5,000.
- The Go represents the likelihood that Client 3 will proceed with the matter and the Get is your chances of getting the work.
- The Adjusted Value of $1,875 is the $5,000 multiplied by a 75% Go and a 50% Get. In other words, the project is more than likely to proceed but it will come down to two firms and you have an equal chance of winning the work.
The above is simple math but determining the $ Value, Go, and Get can be overwhelming. If you do not have a list of different legal services or flat fee, make some estimates of revenue based on a few different types of engagements from the past year. For Go and Get, limit yourself to 25%, 50%, 75% and 100%. Remember, these are only estimates.
The best way to start is with a part of your firm or a practice area and compare your estimates with the actual numbers each month to see if refinements are necessary.
If you’d like to get started on your new business pipeline and preview the other KPIs we will be looking at, here’s a free spreadsheet to help you out.
Read the next post in this series: "How to Calculate Client Acquisition Cost."