Episode #20 Beyond Billable Hours: Mastering The Right Metrics

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Hello and thank you for joining us today on the Profit Scale Thrive Podcast, where we guide attorneys to overflowing profits, scaled growth, and thriving lives. I am your host, Kelley Brubaker.

We have a secret though this is a special place because we don't work with every law firm owner, we support the solo attorneys who are single parents because we know the special challenges you face, and we know the business advice out there is not always practical for you and your firm.

Each week we will talk about things that will give you the insight you need to stop feeling overwhelmed, to gain back your confidence, and to finally enjoy your law firm and your life again.

Podcast Episode #20: Beyond Billable Hours: Mastering The Right Metrics

Hello and thanks for joining me today for podcast episode number 20. 

Today, we have an exciting topic to discuss—looking beyond your billable hour goal and measuring the true success of your firm. Let’s master the numbers of your firm by setting up the right metrics or key performance indicators. These are also referred to as “KPIs”. 

KPIs provide a clear and objective way to measure the performance of various aspects of your firm, such as income, marketing, operations, and customer satisfaction. By regularly tracking KPIs, you will be able to identify trends, spot potential issues, and make data-driven decisions to improve overall performance.

KPIs help align the efforts of different teams and individuals within your firm with your overall strategic goals. When employees know which metrics matter the most and how their actions contribute to those goals, they can stay focused on what truly drives success, leading to higher productivity and efficiency.

KPIs serve as early warning signs for potential problems or challenges in the business. If certain KPIs start to decline or deviate from the target, it can alert management to take corrective actions promptly. This proactive approach can prevent minor issues from turning into major crises.

KPIs provide valuable data and insights that support informed decision-making. Rather than relying on intuition or guesswork, partners can base their strategies and tactics on concrete data, leading to more effective and successful decision-making processes.

KPIs enable businesses to benchmark their performance against industry standards or competitors. Understanding where the firm stands relative to others in the market can help identify areas for improvement and set realistic performance targets.

Now, you might think that tracking numbers may be overwhelming, but doesn’t need to be. Some law firm practice management software like Clio and MyCase and accounting software like QuickBooks will provide a KPI dashboard with a handful of metrics, which is nice, but in my experience, critical KPIs are usually missing or in multiple places.  So, I work with my clients using simple tools like Google Forms and Google Sheets for KPIs. The data is then summarized on one dashboard, making it easy to track progress and compare trends over time.

Once a firm has created its dashboard set up, I highly recommend sharing it with the entire firm. I know that may sound scary, but I have seen it repeatedly how it brings everyone within an office together. Each team member should pick a number they want to impact between staff meetings. For instance, a paralegal may focus on the firm’s conversion rate while a lawyer may focus on average case value or average case duration.

The transparency of your firm’s performance will help to strengthen the team culture. Employees feel motivated and connected to the business as they better understand the impact of their contributions. This will translate into improved efficiency but also results in happier clients who are more likely to refer new clients to you.

10 KPIs That Small Law Firms Should Track

So, what should you track? While there are an infinite number of possible KPIs to track, here’s my recommended top 10 KPIs for law firms. I suggest tracking 3-5. It's essential to pick the metrics that relate to the specific goals and areas of focus for your firm.

For each KPI, I will describe the metric, why you would want to measure it, what data you will need to collect, how to compute it and finally a suggested target.

Let’s dig in!

1. Revenue and Profitability: Measure the firm's total revenue and profitability regularly. This includes tracking overall income, expenses, and net profit to understand the financial health of the firm.
• Why track it: Monitoring revenue and profitability is fundamental for any business, including law firms. It provides a clear picture of the firm's financial health and whether it is generating enough income to cover expenses and make a profit.  Regularly reviewing revenue and profitability allows the firm to identify trends and make informed financial decisions. It helps spot any declines in revenue or unexpected increases in expenses, enabling the firm to take corrective action promptly.
• Data to collect:
• Total income generated from all sources.
• Total expenses, including operational, overhead, and other costs.
• Calculation:
• Total Revenue = Sum of all income generated.
• Net Profit = Total Revenue - Total Expenses.
• Target to aim for: The target for revenue and profitability will depend on the specific size and goals of the law firm. Generally, the aim is to achieve consistent growth in revenue and maintain healthy profitability, with a net profit margin of 15% to 25% being a common target for small law firms.
2. Client Acquisition Rate: Monitor the number of new clients the firm acquires within a specific period. This KPI helps assess the firm's marketing and business development efforts.
• Why track it: Tracking the number of new clients acquired within a specific period is crucial for evaluating the effectiveness of the firm's marketing and business development efforts. Reviewing the client acquisition rate helps the firm determine which marketing strategies are working well and which ones may need adjustments. It allows the firm to allocate resources to the most successful marketing channels.
• Data to collect: Count of new clients acquired within a specific period.
• Calculation: Client Acquisition Rate = (Number of New Clients Acquired / Total Number of Clients) * 100.
• Target to aim for: The target for client acquisition rate can vary but aiming for a growth rate of 5% to 10% per quarter or year is a good benchmark for small law firms.
3. Case Acquisition Rate: Track the number of new cases or matters the firm takes on. Understanding the case acquisition rate helps evaluate the firm's ability to attract and retain clients.
• Why track it: Like the client acquisition rate, tracking the number of new cases the firm takes on provides insights into the firm's ability to attract and retain clients.  Reviewing the case acquisition rate can reveal trends in the types of cases the firm is handling. It helps the firm focus on its core practice areas and understand which areas might require more attention or promotion.
• Data to collect: Count of new cases or matters accepted within a specific period.
• Calculation: Case Acquisition Rate = (Number of New Cases/Matters / Total Number of Cases/Matters) * 100.
• Target to aim for: The target for case acquisition rate can also vary depending on the firm's practice areas and growth objectives. Aim for consistent growth in the number of new cases, with a target of 5% to 15% increase per quarter or year.
4. Conversion Rate: Measure the percentage of potential clients (leads) who become paying clients. A higher conversion rate indicates effective client intake and engagement processes.
• Why track it: The conversion rate measures how effective the firm is in turning potential clients (leads) into paying clients. It reflects the efficiency of the firm's client intake and engagement processes.  Reviewing the conversion rate allows the firm to identify any bottlenecks or shortcomings in the client onboarding process. It helps improve client communication and ensures that leads are not lost due to poor follow-up or engagement.
• Data to collect: Number of leads or potential clients and the number of them who become paying clients in a specific period.
• Calculation: Conversion Rate = (Number of Paying Clients / Total Number of Leads) * 100.
• Target to aim for: Aiming for a conversion rate of 20% to 30% or higher indicates effective client intake and engagement processes.
5. Average Case Value: Calculate the average revenue generated per case. This KPI is valuable for identifying high-value cases and optimizing case selection strategies.
• Why track it: Understanding the average value of each case is essential for the firm's financial planning and budgeting.  Reviewing the average case value helps the firm identify high-value cases and clients, allowing the firm to focus on matters that bring the most significant financial return.
• Data to collect: Total revenue generated from all cases in a period and the number of cases handled.
• Calculation: Average Case Value = Total Revenue from Cases / Number of Cases.
• Target to aim for: The target for average case value can vary depending on the firm's focus and clientele. The aim is to identify and take on higher-value cases, leading to increased revenue. Setting a target of 10% to 20% growth in average case value can be reasonable.
6. Average Case Duration: Measure the average time it takes to resolve a case. This KPI helps identify potential inefficiencies and areas for process improvement.
• Why track it: Tracking the average time it takes to resolve a case provides insights into the firm's efficiency and productivity. Reviewing the average case duration helps identify areas where the firm can streamline processes, reduce delays, and improve client service. It can also assist in setting more accurate timelines for clients.
• Data to collect: Start and end dates for each case.
• Calculation: Average Case Duration = Total Duration of All Cases / Number of Cases.
• Target to aim for: The target for average case duration may differ based on practice areas. Aim to streamline processes and reduce average case duration by 5% to 15% to increase efficiency.
7. Client Satisfaction and Feedback: Gather client feedback through surveys or testimonials to gauge their satisfaction with the firm's services and identify areas for improvement.
• Why track it: Satisfied clients are more likely to provide repeat business and refer others to the firm. Tracking satisfaction helps gauge the firm's reputation and client loyalty.  Reviewing client feedback enables the firm to address any issues promptly and make improvements in its services. It also highlights areas where the firm is excelling and can be used for testimonials and marketing.
• Data to collect: Gather client feedback through surveys, testimonials, or other feedback mechanisms.
• Calculation: Analyze feedback qualitatively to identify areas of satisfaction and improvement.
• Target to aim for: The target for client satisfaction is to continually improve service quality and maintain a high satisfaction rating. Aim for a satisfaction score of at least 8 out of 10.
8. Billable Hours and Utilization Rate: Track the number of billable hours worked by attorneys and staff and calculate the utilization rate. This KPI helps optimize resource allocation and productivity.
• Why track it: Billable hours are a primary source of revenue for law firms. Tracking them is essential for understanding how much work the firm is performing for clients. Reviewing billable hours and utilization rates helps optimize resource allocation and productivity. It ensures that attorneys and staff are working efficiently and that their time is appropriately distributed across clients and cases.
• Data to collect: Number of billable hours logged by attorneys and staff, and total working hours in a specific period.
• Calculation: Utilization Rate = (Total Billable Hours / Total Working Hours) * 100.
• Target to aim for: Aim for a utilization rate of around 60% to 70% or higher, indicating effective resource allocation and productivity.
9. Aging of Accounts Receivable: Monitor the average time it takes for clients to pay their invoices. Reducing the aging of accounts receivable improves cash flow and financial stability.
• Why track it: Tracking the aging of accounts receivable provides insight into the firm's cash flow and financial stability.  Reviewing the aging of accounts receivable helps the firm identify clients who are consistently late paying their invoices. It enables the firm to follow up with clients, implement better payment processes, and avoid cash flow problems.
• Data to collect: Invoice dates and payment dates for clients.
• Calculation: Aging of Accounts Receivable = Average time taken for clients to pay their invoices.
• Target to aim for: The target for aging of accounts receivable is to reduce the average time it takes for clients to pay their invoices. Aim for an average aging period of 30 to 60 days.
10. Employee Turnover Rate: Measure the percentage of employees who leave the firm within a given period. A high turnover rate can be indicative of underlying issues with firm culture or management.
• Why track it: Employee turnover can be costly and disruptive to a law firm. Tracking this rate is essential for understanding the firm's work culture and employee satisfaction. Reviewing the employee turnover rate helps identify potential issues within the firm, such as low morale, inadequate compensation, or lack of growth opportunities. Addressing these concerns can lead to higher employee retention and a more productive work environment.
• Data to collect: Count the number of employees who left the firm during a specific period and the total number of employees.
• Calculation: Employee Turnover Rate = (Number of Employees Who Left / Total Number of Employees) * 100.
• Target to aim for: The target for employee turnover rate is to maintain a stable and engaged workforce. A turnover rate of around 10% or lower is generally considered healthy for small law firms. However, the specific target may vary based on industry benchmarks and firm size.

That’s my top 10 KPI list.  Overall, tracking KPIs empowers businesses to measure progress, identify opportunities, and address challenges, ultimately leading to improved efficiency, profitability, and sustainable growth.

Listener’s Question of the Week

And now, it’s time for our Listener’s Question of the Week!

This week’s question is from Alec. I saw your video on YouTube where you showed how you are moving money to the different bank accounts for Profit First. And, I listened to your podcast episodes where you reviewed the Profit First book. So, I think I understand where the percentages come from and what you are doing, but my question is – did I understand you correctly in your video when you said that you run your firm on 40% of your income? That seems way too low.

Hi Alec! Yes, doesn’t it seem low to only spend 40% of my firm’s income on operations? So, let’s dive into the numbers to see what’s going on. 

First, consider that other than myself, I only have one part time employee. She’s hourly, and she’s fully remote. So, my payroll costs are low at the moment. And, keep in mind that my operating account does not include my salary because I own the business. If you add my salary to my operating account, that’s 87% of my revenue which is more along the lines of what I think you were expecting.

And, Profit First is the reason I look at my firm the way I do with 60% of my firm’s income being set aside for me as the business owner for profit, wages and taxes and 40% to operate my firm with. With Profit First, I am making sure that my firm is profitable and that I am being paid an adequate salary.

I do want to note that I have a target client level that when I reach it, will prompt me to open a new bank account to start saving for wages for a new hire. That money will cover their wages from when they are hired and getting onboarded with my firm. 

So, yes, it may seem outrageous to say that my firm operates on 40% of my revenue, but that is really the current situation.

If you would like to submit a question for a future episode, please send an email to [email protected].

Inspirational Quote

This week’s inspirational quote is from Coco Chanel, “How many cares one loses when one decides not to be something but to be someone.”

Final Thoughts

Final thoughts for today! 

Lots of numbers, right?  Is there a KPI that you track for your firm that you can’t live without, but it wasn’t on my list? I’d love to know about it! Please comment on this video or send an email to me at [email protected]. 

So, where should you start?

Well, the first step is to start simple. Take a blank sheet of paper and write down the numbers you'd like to track. Gradually evolve from there using tools like Google Forms for easy capture of data and Google Sheets to see the results and trends. Google Forms is nice because you can create a set of questions that as they are answered will be populated with raw data into a Google Sheet. From the Google Sheet, you can do the necessary calculations to get your KPIs.

Once your KPIs are calculated, you can set up a few graphs to see trends easier.

But, if you or your staff person who will be gathering your raw data is comfortable with entering data directly into a spreadsheet, the Google Form is not necessary.  Google Forms are just a way to help streamline the data gathering step.

Something that I do want to point out is that if you look at the data needed for each calculation, you may have one number needed multiple times. So you will only need to capture that data once when you update your metrics. Google Sheets can refer to the one number in the different KPI calculations. 

The next step is to decide how often you will review your KPIs. And, this answer depends on which KPIs you select to track. Some data will be available daily, weekly or monthly. The raw data will determine your review schedule.  Personally, I like metrics that are weekly because it’s an easier habit to get into as well as a good time frame that if something is going off the rails, I can react faster.

I do recommend using technology and practice management tools that can simplify data collection and analysis. Regardless, however you gather and store your data, reviewing your KPIs will allow for more informed decision-making and better overall performance. You'll be amazed at the positive impact it can have on your firm and your team.

Before I sign off for today, for listeners of my podcast, you have an opportunity to get a copy of my newly published book for free! 

“Stop Struggling and Start Thriving: A Guide To Transform Your Law Firm”

Download the Free PDF Now 👉 CLICK FOR FREE BOOK

Also, it is available for purchase on Kindle or paperback HERE.

If you have any questions about today’s episode, feel free to comment if you are watching on YouTube or send me an email to [email protected].

If you know someone who might need to hear this information, please share this episode with them or if you are on YouTube, tag them below! 

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Did you enjoy this episode? Please consider leaving a review. 

And before I go – remember profit is something you intentionally plan for in the beginning. It is not a potential bonus at the end of the year!

Thanks, and have an amazing day!

Do you track key performance indicators (KPIs) for your firm? Today, I will discuss the importance of starting simple and gradually evolving your tracking methods using tools like Google Forms and Google Sheets. Reviewing your KPIs regularly will help you to make informed decisions and improve overall firm performance. 

And, for listeners of my podcast, you have an opportunity to get a copy of my recently published book for free! 

“Stop Struggling and Start Thriving: A Guide To Transform Your Law Firm”

👇 Click the link to download your book today. Let's pave the path to profitability together!

#StopStruggling #StartThriving #LawFirmProfitability #eBook

Download the Free PDF Now 👉 CLICK FOR FREE BOOK

Or it is available for purchase on Kindle or paperback HERE.

Be sure to follow and subscribe to get notifications for future episodes!

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