Can you identify the health of your business in 30 seconds or less?
When running a successful law firm, it’s important to track key performance indicators (KPIs) to understand the health and success of your business.
By regularly monitoring these KPIs, you can identify areas of improvement, set goals, and make informed decisions about how to grow your firm. In this blog post, we’ll discuss some of the most critical KPIs that you should track in your law firm.
In This Article
- What is a KPI?
- Leading indicators, lagging indicators, and why they matter.
- What sort of KPIs should I be tracking in my law firm?
- TLDR on tracking KPIs in the legal industry.
What is a KPI?
A KPI is a metric that is used to evaluate the success of an organization or specific business activity in achieving specific goals. KPIs are important because they provide a way to measure progress and determine if an organization is meeting its goals.
For example, if a business’ goal is to increase revenue, it might track the KPI of total sales or average order value. If the goal is to improve customer satisfaction, the organization might track the KPI of customer satisfaction scores or net promoter score (NPS).
By regularly tracking KPIs, you can identify areas of strength and weakness, set goals, and make informed decisions about how to improve your performance. KPIs are also useful for comparing your performance to industry benchmarks, or your own performance over time.
Leading indicators, lagging indicators, and why they matter.
Leading indicators are metrics that tend to change before a change in the overall performance or outcome of a business. They are used to predict future performance and are typically used to inform decision-making and improvement efforts. Examples of leading indicators include customer satisfaction scores, net promoter score (NPS), and lead conversion rate.
Lagging indicators, on the other hand, are metrics that tend to change after a change in the overall performance or outcome of a business. They are used to measure past performance and are typically used to evaluate the effectiveness of past actions. Examples of lagging indicators include revenue, profitability, and customer retention rate.
We strongly recommend a mix of both! This way you can see how your business has been doing, and what’s coming up in the future.
What sort of KPIs should I be tracking in my law firm?
There are several KPIs that can be extremely useful, and should vary based on your goals. We typically recommend choosing 5-10 key metrics to focus on overall – going beyond that can be cumbersome to continuously collect, and individual KPIs can become meaningless among a sea of data. Keep it simple, keep them focused!
Financial KPIs for Law Firms.
1. Revenue and profitability
One of the most important KPIs for any business is revenue, which is the total amount of money that your firm earns from legal services. You should track your revenue on a regular basis, ideally on a monthly or quarterly basis, to understand how your firm is performing financially.
In addition to tracking revenue, it’s also important to track profitability, which is the amount of profit that your firm generates after expenses have been subtracted. Profitability is a key indicator of the financial health of your firm and can help you identify areas where you can reduce costs or increase efficiency.
2. Billable hours
Billable hours are the hours that attorneys at your firm work on client matters and can bill to clients. Tracking billable hours can help you understand how your attorneys are spending their time and identify areas where you can increase efficiency and profitability.
3. Average case value
Average case value is a measure of the average amount that your firm earns from a single case. To calculate average case value, divide total revenue by the number of cases handled. Tracking average case value can help you understand the value that your firm is providing to clients and identify areas where you can increase pricing.
Efficiency and Operational KPIs for Law Firms.
4. Utilization rate
Utilization rate is a measure of how much of an attorney’s time is spent on billable work. To calculate utilization rate, divide the number of billable hours by the total number of hours worked.
A high utilization rate is important because it means that your attorneys are spending a significant portion of their time on billable work, which can increase profitability for your firm.
5. Average hourly rate
Average hourly rate is a measure of the average amount that your firm charges for its legal services. To calculate your average hourly rate, divide total revenue by the number of billable hours.
Tracking average hourly rate can help you understand the value that your firm is providing to clients and identify areas where you can increase pricing.
6. Case load
Case load is a measure of the number of cases that your firm is handling at any given time. Tracking your case load can help you understand the workload of your attorneys and identify areas where you may need to hire additional staff or delegate work to support staff.
Marketing KPIs to consider.
7. Pipeline / upcoming business
Wondering about your upcoming matter load, and what that looks like in terms of revenue and capacity? Tracking your pipeline can be a great tool for making sure your team has exactly the work you need, as well as taking proactive steps to manage upcoming work.
Are things looking a little slim? Maybe it’s time to boost marketing, and outreach efforts, or launch a promotional campaign. Have way too much and wondering how you will handle it all? Time to start hiring!
8. Client aquisition cost (CAC)
Also known as cost per lead, client acquisition cost (CAC) is a measure of how much it costs to acquire a new client. To calculate CAC, divide the total amount you spend on marketing and business development efforts by the number of new clients that you acquire.
This KPI can help you understand the efficiency of your marketing and business development efforts and identify areas where you can improve.
9. Lead conversion rate
This one can be helpful to track if you have many inquiries coming through your door, and want to get a better understanding of how many of these opportunities end up working with you, vs how many end up going with other firms. A CRM can track this automatically, and be helpful if you are finding there are many lost opportunities due to lack of follow up or a confusing client journey.
This KPI is important because it can help you understand the effectiveness of your business development efforts and identify areas where you can improve your marketing and sales processes.
10. Client satisfaction
Client satisfaction is a measure of how happy your clients are with the legal services that they receive from your firm. The easiest way to track client satisfaction is to keep an eye on your google reviews. Or, you can be more proactive and ask clients to rate their experience on a scale or conduct surveys to gather feedback.
Client satisfaction is an important KPI because it can help you understand how well your attorneys are meeting the needs of your clients and identify areas where you can improve the client experience.
11. Revenue by lead source
This can help you figure out what marketing efforts are making your firm the most money, and double down on what’s working. It can also help you identify areas where you are maybe not seeing any ROI, and adjust your marketing focus accordingly, or fix ads or efforts that just aren’t effective.
KPIs for law firms with recurring client business.
12. Client retention rate
Client retention rate is a measure of how many clients continue to do business with you over time. To calculate your client retention rate, divide the number of clients at the end of a period by the number of clients at the beginning of that period, and then multiply by 100.
A high client retention rate is important because it means that your firm is retaining a high percentage of its client base and is likely to continue growing.
13. Average revenue per client
Average revenue per client is a measure of the average amount of money that a client spends on legal services from your firm. To calculate average revenue per client, divide the total revenue by the number of clients.
This KPI can help you understand the value that your clients are getting from your legal services and inform your pricing and marketing strategies.
KPIs to track your firm’s legal performance.
14. Win rate
Win rate is a measure of the percentage of cases that your firm wins. Tracking your win rate can help you understand the success rate of your attorneys and identify areas where you can improve.
How often you should track KPIs.
It is important to take a look at metrics both in a shorter term span, as well as over time. For example, you might want to look at revenue on a monthly basis, your change in revenue over time, as well as your rolling 12, year over year performance.
A good rule of thumb is tracking them as often as you review them. A dedicated salesperson might look at their stats (calls made, demos or consults booked, deals won, etc.) on a daily and weekly basis, whereas a busy owner juggling many responsibilities may only review their KPIs monthly or quarterly.
If you need help figuring out a rhythm that works for you, do not hesitate to reach out!
TLDR on tracking KPIs in the legal industry.
In summary, KPIs are important because they provide a way to measure the success of an organization or specific business activity in achieving its goals, and they can inform decision-making and improvement efforts.
This can all seem like a lot (especially if you’re starting from scratch), but reviewing data over time can help you better understand your business, how it’s doing, where it’s going, and what you can do to support it.
With the right processes (or even automations) gathering and reviewing KPIs does not need to be a big endeavor! Many of these KPIs can easily be pulled in reports if you have a robust CRM or Practice Management System.
You can always reach out to a qualified business consultant (*ahem*) if you are just too busy and need help getting the bones in place. Interested in a quick call to see if we can help you? Click below!