It’s easy for busy attorneys like us to get trapped in “taking care of business” mode. While getting stuff done on the daily is a great thing, where are you going with it all? Are you actively reaching your goals and moving your firm forward? If you can’t honestly say “yes,” it’s time to make a change.
To truly succeed and grow your firm, you must be able to:
- Pinpoint areas of improvement and find solutions to those concerns
- See what’s holding you back from reaching your goals and stop it in its tracks
- Take notice and celebrate when you and your team experience a win
The best way to make it all happen is by tracking and measuring your law firm data and key performance indicators (KPIs).
What Are Law Firm Key Performance Indicators (KPIs)?
Key performance indicators are metrics used to measure specific goals within all areas of your law firm such as finances, marketing, business development, and more. Measuring and tracking your KPIs will allow you to:
- Monitor the health of your firm. KPIs allow you to see how well your law firm is performing. For example, KPIs make it easy to track your finances and how much your firm is growing each month. They allow you to see problems and successes quickly so you can take action by creating new goals or redirecting your team’s efforts.
- Simplify decision-making. Armed with the above information, you can make informed, rational decisions for everything in your business. You don’t have to guess if a decision is the right one. Instead, you can (and should) measure all variables to make the best decision for the future of your firm.
- Track your wins. By tracking your KPIs, you track your wins. Monitoring law firm data makes it simple to incentivize your staff’s hard work. After all, when you meet your numbers, everyone benefits.
We know that listing all the benefits doesn’t hide the intimidation factor of data. You went to law school, not business school. Tracking and measuring your law firm data isn’t as difficult as it sounds, however. Allow us to show you how to get started.
How to Use KPIs to Grow Your Data-Driven Law Firm
Before we dive in further, take some time to consider your business goals. These goals are the basis for using KPIs to grow your firm. Some examples of law firm goals include:
- Hiring a new employee
- Increasing revenue
- Decreasing business expenses
- Improving client satisfaction
- Creating and launching a new legal service
- Improving your financial health
Remember, your goals should be S.M.A.R.T: specific, measurable, achievable, relevant, and time-bound. Once you have clear and specific goals, assign KPIs to measure your success. Luckily, there’s a number for everything that matters in your firm.
Types of KPIs for Successful Firms
KPIs can cover all aspects of your business, including your finances, client satisfaction, marketing, and business development.
Want to increase your revenue or improve your law firm’s financial health? You’ll want to track some Financial KPIs, including (but not limited to):
- Invoice amount
- Accounts receivable
- Budget expenses
Regardless of your goals, we recommend tracking some basic financial data to keep an eye on the health of your firm. For a quick win, narrow your financial KPIs down to the top five financial numbers you need to understand your business.
Your clients are your most valuable assets. Firm success requires that you watch certain metrics involving your clients.
Client satisfaction KPIs tie to several key law firm growth goals such as increasing referrals, increasing revenue (happy clients are loyal clients) and improving overall client experience. Some examples of KPIs to track include:
- Net promoter score (NPS)
- Client retention rate
- Speed at which you close cases
Your net promoter score measures whether your current or former clients would recommend your legal services to others. A satisfied client is more likely to do so. This metric is most often gathered using a survey at the final delivery of your services.
Other measures such as closing speed and retention can give you insights into how happy your clients are with your services. Do you have a lower NPS then you expect? Are you losing clients? If so, your client satisfaction is low and action must be taken to improve it.
Marketing and Business Development
Is your current marketing strategy working? Without measuring KPIs, there’s no way of knowing. By tracking marketing metrics for your firm, you can see your marketing strategy’s performance and tweak where needed. Some of these metrics include:
- Organic traffic to your website
- Number of leads generated
- Conversion rates
- Acquisition costs/return on investment (ROI)
For example, if you see that your website traffic is trending down, some fresh content might do the trick. Or, if you see low conversion rates yet high traffic, your website isn’t inspiring potential clients to give you a call. You might need to change your call-to-actions or refresh your website.
Marketing and business development go hand-in-hand, as they’re both critical to achieving long-term growth goals. Some examples of business development metrics to track include:
- Number of new clients each month
- Competitor pricing
- Sales cycle length
- Number of leads that turn into consultations
Profitability KPIs and Law Firm Financial Ratios
Every law firm should have a documented long-term financial strategy and profitability model. In fact, any healthy business has a written plan to forecast revenue, expenses, net profit, and cash reserves. To ensure you follow through with your plan, track your firm’s profitability and financial KPIs.
5 Financial KPIs Your Firm Must Track
To select financial KPIs that make sense, we recommend working with a bookkeeper to help you solidify your goals based on what’s healthy for your firm. Then, select financial indicators that fit those goals.
To get you started, here are five financial KPIs you must know at all times to judge the health of your firm:
- Profit percentage. This number explains what percentage of your revenue is profit. A good target is 10-15 percent with all partners being paid market rate.
- Accounts receivable over 30 days. This metric allows you to see a high-level view of how much cash is currently owed to you by your clients. The smaller the number, the more cash you have for your firm.
- Cash on hand. Whether in your pocket or your business bank account, cash on hand refers to the amount of cash you have available for use. A solid target is 30-90 days’ worth of operating expenses for your firm.
- Labor percentage. This metric relates to the overall payroll expense for your firm as a proportion of your gross sales. Aim for 30-33 percent.
- Realization rate (collected fees). Finally, your realization rate is the number of collected fees in a specific period, usually a month. Your goal here should be 95 percent or greater.
How to Capture Law Firm Data Sources and Track your KPIs
If you’re still with us at this point, kudos! This is a lot of information to process, especially if you’re new to the KPI game. The trickiest part is knowing which data points are most important for your firm and which ones are simply noise. Make it easy by starting small:
- Select three business questions. Based on your goals, choose three business questions you want to answer and find a way to measure them. For example, one of your questions might be, “How many new clients am I taking in each month” or “How much monthly revenue do I need to reach my yearly goal?” Select metrics that will help you answer these questions.
- Plan a system for updating and tracking. How will you track your metrics? How often will you capture them? Who will be responsible for tracking them? Create a plan you can stick to going forward.
- Measure weekly. We recommend compiling your data weekly and measuring it against your previous data.
Capturing and Organizing Your Law Firm Data
There are many ways to capture your data, depending on the points you choose. For example, if you’re tracking leads from your website or online traffic, Google Analytics can capture those metrics for you. Other metrics such as your number of new clients each week might need to be captured manually or via your law firm CRM tool.
The key is to organize your data to avoid having numbers in various places so you can glean insights from your numbers simply and quickly. Plus, it’s easier for your team to visualize the data when it’s organized well.
If you do not yet have a central repository in place to lay out your data, we recommend creating a new document or spreadsheet that key players in your firm can access and update. For example, consider using an Excel spreadsheet on a shared drive or a Google Sheet.
KPI and Team Responsibility
If you have a team, you’re not alone in tracking your law firm KPIs. Consider giving each of your team members their own KPI. Then, incentivize them for their hard work when they reach their goal. As a result, your team will feel responsible for the success of your company, boosting their morale while helping you achieve your goals.
Review Law Firm KPIs and Data Points
It isn’t enough to gather the data—you must do something with it. Go over your KPIs and data points with your team in weekly meetings. Dedicate part of your team’s agenda to discussing what can be done to improve while also celebrating wins. Take note of what’s working and what isn’t to create an actionable plan for moving forward.
You may begin to wonder if you have the time—or even the skillset—to manage everything we’d laid out here, in addition to managing your client caseload and running your firm’s day-to-day operations. You might even be considering whether to hire a business manager to collect and analyze the data for you. While this is a great solution for businesses gathering numerous data points, we believe this it’s unnecessary when you’re first getting started.
You need to be familiar with your law firm’s numbers. You need to know what you’re tracking and why. Make the tracking and measuring of your law firm’s key performance indicators a priority. Schedule time each week for you to pull everything together. Set an agenda item on your weekly meeting to discuss the numbers and any action items that stem from them.
Grab Our Free Law Firm KPI Tools
As attorneys ourselves, we’ve been where you are. We know this can feel overwhelming at first. Remember, you’re not in this alone. And you certainly don’t have to recreate the wheel.
Through our own trial and error, we’ve learned what it takes to effectively select, gather, and analyze KPIs to help grow our firms. Allow us to share that knowledge with you by checking out our free law firm KPI tools.
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