Law firms are in the business of helping people, but they are still businesses. Large law firms have teams of people working on analyzing and investigating their performance on key metrics. Smaller law firms, on the other hand, may struggle to allocate adequate resources to analyzing their financial metrics. Regardless of firm size, there are specific metrics that the firms must track and publish to their attorneys. It is ironic that some attorneys want to focus on spending time with their clients, but if they don’t focus enough on their financial metrics they may not have enough clients to spend time with! To ensure that the firm is financially profitable and growing their client base, it is important that every law firm tracks five essential sets of metrics.
(1) Marketing Metrics
Marketing is often the most significant expense for businesses, and law firms are no different. Tracking marketing metrics such as total marketing spend, number of leads generated, conversion rates, average cost of client acquisition, and average revenue per client is an essential practice for any law firm. If a firm ignores these metrics, there is a good chance they are spending too much money on marketing without reaping the necessary benefits.
(2) Case Lifecycles
Law firms may know how much they spend on an average case, but they often overlook the importance of tracking the lifecycle of each case. Creating a report outlining metrics for several stages such as pre-filing, discovery, litigation, and settlement negotiation can help determine the areas to which the most hours are being allocated.
Determining how long it takes to move a case to completion, the value of a case at each stage, and which department moves cases the quickest can help firms distribute resources where they are needed most. A keen focus on matter lifecycle management can have a significant impact on firm profitability.
(3) Referral Metrics
Referrals are the backbone of many law firms. Firms may track the number of referrals they receive in a month or quarter, but fail to track the value of each separate referral.
The dollar amount of each referral is an essential metric in itself. Law firms, however, should also track the number of resulting matters, along with the time and investment made into those referrals. These metrics can show important discrepancies. For example, a firm may notice that they are spending a lot of time with referrals, but not receiving the desired return they had anticipated.
(4) Financial Management Metrics
Law firms have a vast number of financial metrics to track. These all detail client costs, collection realization rates, direct expenses, overhead, and more. Tracking each of these metrics is of vital importance, as they define the money coming in and the money going out. Tracking these metrics can quickly become overwhelming for attorneys. A BI platform can help keep the information organized in one place and easy to reference at a glance, allowing your attorneys to focus on billable client work.
(5) Billing Realization Rate
It is not uncommon for attorneys to provide a discount when the client either requests or demands one. It is important to track discounting metrics, as well. When too many discounts are provided, they begin to eat into a law firm’s revenue. A target collection realization rate, or the amount billed versus the amount paid, is typically above 90%. Tracking the profit and loss numbers associated with these rates as well as the gross fees collected can help law firms realize when discounts are significantly impacting revenue.
Get the BI Platform to Track Your Firm’s Most Important Metrics
If your law firm has been looking for a better BI solution, call Iridium Technology today at (+1) 610-397-8672. By customizing our platform, you will see the metrics most important to you using your choice of a cube or dashboard. We know what law firms are looking for, and we have created a solution that provides a complete BI framework for all firm analysis needs. Contact us today for your free consultation.