The following post is an excerpt from our latest eBook, Law Firm Data: The Shortest Path to Revenue. Download the eBook today to learn how to use your firm’s data to increase performance, efficiency and revenue.
In Legal Technology, there is much discussion and range in terms of Key Performance Metrics (KPIs) tracked by law firms. As the American Bar Association (ABA) pointed out in a recent article: “There’s a wide variation among firms in the type and amount of financial information that firm management receives on a monthly basis. Moving from one extreme to the other, we know of one firm’s management committee receiving so much monthly information it came in a banker’s box and another firm where the managing partner was getting all the information he felt he needed on one page.”
As the ABA points out, much of the benchmarking that takes place today is based on historical experience, rather than a forward-focused attempt to connect data with the firm’s goals. In order to do this, firms must be sure that the data that they are including in their measurement activities collectively paints the whole picture of the financial health of the firm, connected to the firm’s aspirations. However, most firms only track part of the picture.
Consider how you use data at your firm. If I were to ask you which data points you are using to make decisions, would you mention any of the following?
- Effective rates
- Billing realization
- Collection realization
- Net Profits
- Collection cycles
- Expense & revenue budgets
- Revenue per lawyer
You might have noticed that all of these things exist after the invoice has been created. However, have you considered any of the data points that occur before invoicing? More importantly, why does any of this matter?
A recent report by Thomson Reuters titled “2017 State of the Legal Market,” showed a decline in productivity, measured in attorney billable hours. The data shows that attorneys are billing less hours each year, resulting in a cost to the firm of $66,672 per attorney per year. Are attorneys working less hours? Not so much. In this 24/7 era of communications, attorneys are working at all times and from all locations - billing time in smaller increments. The challenge is that this “invisible time” often goes unrecorded, causing the attorney and the firm to leave money on the table due to less hours billed. Having the right metrics in place, specifically connecting those KPIs that occur before the invoice to those that we’ve traditionally measured (after the invoice), will provide firms with complete visibility into their time entry performance. The result is the ability to make a connection between behavior and revenue.
As emphasized in a recent eBook by Clio titled “Measure, Measure, Measure: Every Law Firm’s Guide to Key Performance Indicators (KPIs), “This has been the status quo in the legal world: measuring from the supply viewpoint and focusing purely on all things billable. There’s been little to no emphasis on measuring the efficiency of legal service delivery or the quality of the work.” In order to get to the real answers, let’s put our data to work for us.
Read the full eBook, Law Firm Data: The Shortest Path to Revenue here.
Have you started measuring your efficiency using data that happens before the invoice? Share your experience in the comments below.