A universal truth: the to-do list at any law firm is always a thousand miles long. If your doors have been open for a year or more, it’s like it’s two thousand miles long. But how efficiently you and your team are getting through that list? That’s the difference between a successful firm and one that does alright.
You want glowing reviews. You want to feel in control of deadlines and tasks (ok, let’s be realistic – at least mostly in control). You want to deliver quality work product. And you certainly want to generate a profit.
With nearly all of your income coming from time billed, you need to be very aware of where time is being spent and how. It all comes down to productivity. It doesn’t matter how hard of a worker you are – if your internet is slow, your computer keeps freezing or you’re doing a task manually that could be done in 1/50th the amount of time by a program, you’re not being as productive as you could be. And that impacts the bottom line.
We’re going to show you how you can go beyond time tracking to looking at true metrics that will let you know how productive your firm is, what your outputs are, and where there are gaps or issues with resource usage by looking at the following metrics.
Track: Number of Matters Opened/Closed
This metric is going to vary greatly depending on the type of practice you have and your firm’s approach to taking on cases. While these numbers won’t give a right or wrong necessarily, it will tell you whether or not you’re bringing in enough cases at your price point to cover overhead and grow.
For example, let’s say each new case generates $5,000 in revenue by the time it’s closed and you have monthly expenses of $40,000. If you’re only opening 8 new cases a month that are taking 6 months to close, you’re likely not going to be able to cover your costs. You either need to increase your prices, take on more cases, or reduce your overhead.
From a productivity standpoint, you want to know if cases are taking longer to complete than they should be. When you run the numbers, you may be surprised to see how long cases are taking to close. Once you know the issue, you can dig in further to figure out what’s causing the delays.
Track: Utilization Rates by Staff Member
Micro-managers can make for difficult bosses. But you still need to know how well your employees’ time is being spent. You don’t need to check in constantly, but you do need to know out of the time worked in a week how many hours were billable and how much was non-billable.
To figure out the utilization rate, you can simply take your billable hours and divide it by the number of hours recorded as long as your firm diligently tracks time. If you don’t, then you can just divide by a fixed number of hours such as 40. You’ll be able to tell if your resources are distributed properly – and if your time tracking needs improvement.
Track: Realization Rate by Timekeeper/Matter Owner
It can be helpful to a client relationship to offer discounts or no charge activities. But taking it too far can be an issue. To keep it in check, look at the time that is billed and how much of that is paid by the client.
Track: Percentage of Cost Recovery
You’ve billed a new record of billable hours this month. That’s great! But what happens when your clients don’t make a payment on those invoices?
A cost analysis of costs captured, billed and then collected will show exactly how well your firm is doing in recording cost (and very importantly getting reimbursed for client expenses) and if there are collections or billing problems.
Track: Fixed Fee Profitability Ratios
Ah, the simplicity of fixed fees. Or so it seems at first, until you realize that you’re sometimes putting in more effort than you thought you would be on a case. There’s always going to be one-offs that don’t fit the usual timelines, but you should be on top of the profitability of any fixed fee cases.
If you find that you’re spending more time on a specific type of case than you’re making consistently, the issue could be the need to charge more or inefficiencies. To figure out which is the problem, track all non-billable time, and assign a dollar value to it. From there you can compare the total amount versus what you’re actually bringing in.
Track: Work in Process (WIP) vs. Available Client Funds
If items have been waiting to be billed for too long, it could be a red flag. What’s the hold-up? You want to get those invoices out the door so they can be paid.
Retainers are another piece to regularly keep an eye on. Evergreen retainers and consistently funded trust accounts are going to make sure your invoices can be paid once the WIP is billed.
Track: Aging of Accounts Receivable (A/R)
Waiting to get paid hurts your cash flow, which is a big deal when it comes to paying vendors and employees – and yourself! Tracking your aging of A/R shows you how long invoices have been outstanding and prompts you to think about what you can do to get that number lower.
Using a program with automatic past due reminders is a great way to stay consistent with your collections efforts, and regular, timely billing can start things off on the right track. You can also think about offering additional payment options, like credit cards (although be sure to choose a merchant that knows the unique requirements of the legal industry, such as LawPay).
Track: Proportion of Administrative Non-Billable Time
One of the benefits of tracking non-billable time is that you can see how much time is being spent on routine administrative tasks like billing, reception, and data-entry. Looking at the time spent here may show the need for tools to help decrease the manual time spent on these tasks. If you look at how much time is spent, what you pay someone to handle those tasks and how much time tools could save versus manual handling, you’ll be able to determine the value.
Want to know more about what your firm should be looking at to make sure you’re maximizing your productivity? Check out our webinar, 10 Productivity Metrics Your Law Firm Should Track