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Mid-Year Check-In: What Metrics Law Firms Should Be Tracking
We’re six months into 2023. How’s your law firm performing?
Maybe your law firm is on the right track to reaching every single KPI you set for 2023, or maybe you need to pivot in order to hit your goals by the end of the year.
Are you operating efficiently, or missing out on some easy changes you could make to increase profit?
Do you have the data to understand where you need to focus your energy or reduce resource allocation?
To make these decisions, you need the right metrics. But it’s one thing to know that you need to analyze company data, and entirely another thing to carry it out—and do so correctly.
After all, most law firms don’t have much time to spare. And manual data analysis can be a tedious, error-prone process. On top of that, any data analyst will tell you that you can cut and splice data in a thousand different ways and end up with different results.
So how do you know which metrics to use, and whether you’re getting the answers you actually need?
First, you need accurate data
Your data analysis is only as good as the data you collect. And relying on individuals to track data manually over a long period of time doesn’t guarantee particularly accurate results. For example, manual time tracking can lead to 25% of billable time lost.
The best way to get accurate data points for your metrics? Automate data collection as much as possible.
Legal practice management software with built-in automated time trackers can ensure that your billable hours are correct for every single team member. Plus, by housing all of your time, expense, and case matter information in an integrated practice management system, you can access critical metrics related to case matters and firm productivity.
Even better, these systems feature built-in analytics and reporting features to help you get the information you need in less time (and with fewer headaches).
Once you have the right tools and the right data, you can move forward knowing that any changes you make will be grounded in accurate information—not firm-wide guesswork.
Ultimate Guide to Law Firm Business Intelligence
Are you sure about running a law firm without regularly analyzing performance data?
There are just certain things in life that you wouldn’t, even couldn’t, do without a little research and background information. Running a legal practice is definitely one of those things.
Ten metrics your legal practice can use to improve profitability
If you want to make the most of your mid-year check and stay on target for your 2023 goals, here are the metrics you need to be tracking.
1. Average Case Unit Value (ACUV)
The ACUV is the average monetary value of all case units, which can provide a birds-eye view of your revenue. Tracking this metric can answer questions like:
- Are your matters bringing enough revenue to your firm?
- Do you need to expand your client base or raise billing rates?
- Are you pursuing the most profitable practice areas and services?
You can easily pull your ACUV and throughput rate (below) by pulling a pre-configured Lean report using the business intelligence tools in practice management software.
2. Cycle time
Your cycle time is the amount of time it takes to complete a matter from start to finish. In this case, “start” refers to the moment your client signs an engagement letter, and “finish” is the moment that the case is closed and all fees are collected.
By breaking down the cycle time per case matter or case matter type, you can compare your cycle time with your ACUV to understand which cases are dragging on for longer than they should. From there, you can focus on identifying any bottlenecks that need to be addressed.
3. Throughput rate (TR)
Your throughput rate tells you how many case units your law firm can finish in a given year. For example, if you finish 100 cases in a year, then your throughput rate is 100.
Reducing cycle time at your practice increases the throughput rate. By reviewing your TR and ACUV together, you can project your law firm’s revenue for the rest of the year and determine whether you’re still on track to meet your profit goals.
4. Productivity per matter or matter type
Firms that use contingency or flat fee billing structures should pay particular attention to which cases require more firm resources. Do some case matter types require significantly more effort from your firm? Are there some matter types you should shift your focus to because they generate a better net profit?
This information can allow you to adjust resource allocation, increase or decrease staffing, or evaluate whether to continue or discontinue certain practice areas.
5. Matter budget
If you’re focused on your law firm’s net revenue, set a budget for each matter and monitor your spending. By tracking matter expenditures, you can spot financial problems and see why certain cases cost more money than others—and whether it’s time to reassess those client relationships.
6. Billable hours by timekeeper
Use an allocation report to track the revenue each attorney brings in at your practice. Come payroll time, this makes it easy to pay employees a percentage of revenue (or to determine who might be falling behind).
7. Productivity per user
Every employee works differently. By tracking productivity per user, you can determine which timekeepers track the most time, along with their billable- to non-billable hours ratio. This can provide key insights into how your top performers are spending their days, which employees aren’t allocating their time wisely, and which areas of your firm’s workflows need attention.
8. Client origination
Use an origination report to see which team members bring in which clients or cases. Is one team member bringing in more clients than the rest? If that’s the case, it could be valuable to provide them with more business development responsibilities.
9. Annual overhead
Operational costs add up quickly in a law firm. It’s not just travel expenses and filing fees—it’s also paper, office supplies, rent, utilities, and attorney and legal staff salaries.
Use practice management software with expense tracking integrations to review your total expenses for a better understanding of your law firm’s net profit.
10. Collection rate
Even if your firm is charging plenty of billable hours, it doesn’t mean anything if you have a low collection rate. It might be time to review which clients are causing the most issues, and whether they’re worth retaining.
If your firm is spending too much time on collections, consider automated billing and online payment options to get paid faster and provide a better client experience.
Track the right metrics with Rocket Matter
It can be tricky to source the metrics you need to build a more productive law firm. But there’s a solution. Rocket Matter’s business intelligence and advanced reporting features help law firms easily get the metrics they need to make the right strategic decisions for their practices.
Schedule a free demo today!
Ultimate Guide to Law Firm Business Intelligence
Are you sure about running a law firm without regularly analyzing performance data?
There are just certain things in life that you wouldn’t, even couldn’t, do without a little research and background information. Running a legal practice is definitely one of those things.
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