Defining Your Firm's KPIs to Gain Business Intelligence
“I don’t care how our firm is doing,” said no law firm partner, ever. Law firms are in business to help clients with their legal needs, but you’re also in business to make money and be successful. But if you are not looking at the right metrics to measure your success, you may find it difficult to reach your goals.
When you have a comprehensive view of your firm and its key performance indicators (KPIs) at your fingertips, you can help steer your firm in the right direction.
Why Measure KPIs?
It’s cliché, but knowledge really is power. When you are tracking KPIs, you will have the information you need to identify if a specific associate is impacting your firm’s performance (either positively or negatively), the effectiveness of various marketing efforts in attracting new clients, and much more.
KPIs are intended to help you look beyond your law firm’s balance sheet so you can use the data you are capturing proactively, rather than simply reacting to it.
What to Measure
The sky is the limit when it comes to what you can track. However, there are certain indicators we believe will provide you with more actionable insights than others, including client satisfaction, client development activities, firm culture (employee satisfaction), the cost of acquiring clients, productivity, profitability, and individual attorney performance.
When you end a client engagement, are your clients generally happy with the service they received at your law firm? If you don’t know or aren’t sure, start asking them.
This can be eye-opening for many law firms that make the mistake of assuming that no complaints equals happy clients. Another mistake is assuming that getting a favorable outcome for a client means they were happy with the service your firm provided, or that a negative outcome always means the client was unhappy with the way you represented them.
Cultivating happy clients is in your best interest. Referrals, at 13.6 percent, are the most common way for people to find an attorney. When a client is satisfied, your firm will be the first they recommend to their friends, coworkers, neighbors and others looking for a referral.
Create your own satisfaction survey, or use a simple online tool. When you receive feedback, put it to good use. Over time, you should be able to maintain and grow client satisfaction scores.
Your firm’s client development activities are one of the most important activities your firm engages in. After all, it’s what ultimately feeds your practice. But, do you know which development activities are returning better results than others?
If you have multiple marketing campaigns, channels or activities, being able to zero in on what is working well can help you decide how to best use your marketing dollars and decide which activities you can stop. In a survey by Stellar SEO of over 101 law firms, more than half grew their number of clients due to increased social media engagement. But what social channels are your clients on — LinkedIn, Facebook, Instagram, Pinterest, Twitter? Developing and engaging your potential clients starts with a deep knowledge of who they are.
When you track referral sources in your firm’s financial management system, you will have the ability to slice and dice this data to get a clear picture of how to best allocate client development resources.
Are the associates and staff at your firm generally happy with their jobs? Firm culture has a lot to do with employee performance and productivity. When employees are satisfied and feel they have the tools, resources and support they need to do their jobs well, you’ll see that reflected in your firm’s financial performance.
As with client satisfaction though, don’t make the mistake of assuming that employees are happy just because they haven’t come out and said they’re unhappy. You can create your own survey to gage the culture at your firm, or partner with a third-party firm to help capture and evaluate the results. Going with a third-party firm is more likely to make your employees more willing to speak their minds anonymously.
If you receive surprising answers you didn’t expect, use that information to make improvements. Then, survey staff again in a year to compare results.
Cost of Client Acquisition
Do you know how much it costs the firm to acquire client A? What about client B? There are a lot of expenses that go into bringing on a client. Your firm is already tracking marketing spend expenses and attorneys’ time. Leverage that information to create an average client acquisition costs, then work on lowering that cost over time.
Your firm’s financial management system can help with this, as you’re already capturing key information that just needs to be combined in a meaningful way for you to use it.
Productivity and Individual Attorney Performance
Tracking productivity at the firm level — and at the individual attorney level — is an important metric to help you identify whether there are certain employees who should be recognized for doing well and whether there are others who are underperforming. Tracking productivity can also help you improve it by reallocating work as needed.
Looking at the number of cases handled in a specific time period by the firm and by individual attorneys, tracking average time per case, and reviewing whether and on which matters outside counsel was needed can help you adjust and allocate work more efficiently.
Profitability and Margins
Last, but not least, don’t track all of the above KPIs without also keeping an eye on your firm’s profitability and margins. Tracking realization of accounts receivable and expenses over time will help you improve those metrics.
As with any business, your budget decisions need to be based on the numbers, so keep an eye on them and use balance sheet data wisely.
These can easily be tracked by utilizing the Profitability module in your time & billing software.
Monitoring and tracking your KPIs is only the first part of the story, and it won’t do you any good unless you build a plan of action based on the insights you gained from your financial metrics.
Have a plan in place to review your firm’s KPIs regularly, and to take action. When your law firm’s financial management system is tracking the right information, and when you’re using it to improve the metrics over time, you will be able to leverage that data to continue achieving your firm’s goals.