Making data-driven decisions is a powerful tactic that can help any business, including law firms. Basing strategy and initiatives off of numbers and trends makes it much easier to identify challenges, opportunities for growth, and help keep a competitive edge. In order to see the big picture and make informed decisions, there are key metrics that will give you the critical information you need.
These essential metrics can help you evaluate areas of your business to find places for improvement and show where you can capitalize on opportunities. Billing and funds collected are one of the most important areas to focus on as these metrics will show if you’re having a cash flow problem and if so, where it’s occurring. For this section, it’s helpful to look at your work in progress (WIP), accounts receivable by aging, utilization versus realization rate, and overall financial trends.
Diving deep into your practice area, partner and case data will show you what’s profitable and where cutbacks may be needed. Review your revenue and profitability by practice area and individual (taking care to assess separately to see if expenses are too high), percentage of repeat versus referred clients and business development efforts and costs. Here is where you’ll find the clearest outline of what direction your firm should in and where the focus should be placed.
For a big picture view, take a look at your cost analysis, administrative versus overhead cost and overall trends. These can signal areas where you can firm can shift resources and also provide an indication as to the overall financial health of the firm. Doing a cost analysis as well as reviewing your fixed/contingency fee case profitability ratios can also help you see if there should be changes to the firm’s processes.
Tracking all of these metrics manually can take up a lot of time, so it could be worth investing in the right tools that can easily show you the data you need. Legal-specific tools like CosmoLex are built to generate reports and produce important information with the click of a button. Taking advantage of this technology can save you time and well cover their cost by providing the data necessary to make data-driven decisions.
All of these factors affect the bottom line and devoting time to their assessment gives you a way to make tactical decisions. Want to learn more about which metrics your firm should be tracking to improve its bottom line? Get in-depth information by reading our recent article, 10 Metrics Law Firms Should Track.