Key Performance Indicators for Law Firms

What Should You Be Tracking?

As we get into the flow of things, it dawns on us – how are we supposed to know how well we are doing – as the year progresses – if we are not tracking our performance?

A law firm – as we already know – is a business, and tracking performance indicators provides a way for any business to measure their growth and development. 

Things like productivity, profit margin, scope and cost are some examples of performance indicators that a business can track to determine if target objectives and goals are being met. But there are different areas of a business, and each area will have its own Key Performance Indicators. There are also various kinds of businesses, and each type of business will have its own Key Performance Indicator.

It sounds complicated but it really isn’t. 

Allow us to explain.

Firstly, What Are Key Performance Metrics?

There is a term that you may come across that needs explaining – Key Performance Metrics.

These metrics are essentially measurable types of data that are used to track processes within a business using things like activities, employee behaviour, productivity, or customer satisfaction as measurable data. 

This measurable data is then used to track and measure the achievement of overall business goals. Key Performance Metrics – therefore – is a collection of data that employers evaluate against an established objective (like employee productivity or sales objectives). An example of a Key Performance Metric would be average matter value.

Is There a Difference Between Key Performance Indicators and Key Performance Metrics?

First things first. Let’s establish what a Key Performance Indicator or KPI is…

According to Qlik, a KPI is – 

a quantifiable measure of performance over time for a specific objective. KPIs provide targets for teams to shoot for, milestones to gauge progress, and insights that help people across the organization make better decisions. From finance and HR to marketing and sales, key performance indicators help every area of the business move forward at the strategic level.

While KPIs and Key Performance Metrics are related, they’re not the same.

KPIs are the key targets you should be tracking to ensure that you’re making the most impact on your strategic goals. KPIs support your strategy and guide your teams focus by letting them know what’s important. An example of a KPI is the number of new and targeted clients per month.

Whereas Key Performance Metrics measure the success of everyday business activities that support your KPIs. While they certainly impact your outcomes, they’re not the most critical measures. 

Why Is Measuring KPIs Important?

KPIs are the quantifiable indicators of how your firm is progressing towards a strategic business goal. They provide focus for strategic improvement where needed, create a basis for decision making and they help to focus attention on what matters most to your firm. They also assist in setting targets (the desired level of performance) – like how many new clients should be targeted – and (most importantly) track the progress towards that target. 

KPIs can be financial, including net profit (or the bottom line, net income), revenues minus certain expenses, or the current ratio (liquidity and cash availability). They can be client-focused generally centering on per-client efficiency, client satisfaction, and client retention. Service driven businesses – like law firms – would generally apply client-focused KPIs. Whereas process-focused KPIs aim to measure and monitor operational performance across the business.

Choosing which Key Performance Metrics to use ultimately depends on what type of business you are in. 

Measuring KPIs In Your Law Firm

There are countless KPI metrics available. How do you know what to measure or why? It’s so easy to become overwhelmed by the very idea of applying KPIs. But fret not, we have set out a list of 6 KPIs that should you track, they will lead you to making more informed decisions. They include – 

1.         Client and Matter Development KPIs – tracking client and matter development can help your law firm understand how well you’re retaining clients and developing new business. Some specific KPIs to consider tracking in this category include: 

a)         new client acquisition rate; 

b)         client growth rate; 

c)         average number of cases closed; 

d)         average fee per client; 

e)         number of lawyers per client and 

f)          number of matters per client.

2.         Client Satisfaction KPIs – client satisfaction is at the core of your firm’s success. In order to foster a business clients want to work with, it’s critical to keep a close eye on the experience each client has when using your legal services. Monitor these client-related related metrics to uphold your firm’s reputation: 

a)         client retention rate; 

b)         client satisfaction rate (collected through surveys or reports); 

c)         Google star ratings; 

d)         qualitative data (long-form reviews from clients) and 

e)         number of client referrals.

3.         Marketing KPIs – marketing your firm will help you to generate new leads and capture interest from your target audience. When spending money to acquire new clients, you’ll want to track your expenses and efforts to make sure the investment creates optimal results. Track these to ensure your marketing is being put to optimal use: 

a)         number of website visitors per month; 

b)         landing page conversion rates; 

c)         email marketing performance; 

d)         cost of client acquisition; 

e)         referral traffic; 

f)          lifetime customer value and 

g)         social media engagement.

4.         Financial KPIs – tracking financial KPIs can help your law firm understand its financial health and identify areas where you may need to adjust the budget: 

a)         monthly law firm revenue; 

b)         total firm debt; 

c)         collection rate; 

d)         length of accounts receivables; 

e)         current estimate of operating costs; 

f)          current estimate of annual revenue; 

g)         net income as a percentage of revenue; 

h)         net overhead and

i)          preferred client payment method. 

5.         Individual Performance KPIs – monitoring team productivity is difficult when you’re busy with your day-to-day workload. Time is of the essence, and you want your team to work efficiently to generate healthy revenue. The best way to ensure your law firm performs at its best is to establish a performance management system based on quantifiable data sets like: 

a)         billable hours; 

b)         non-billable hours; 

c)         average bill rate; 

d)         case progression; 

e)         case access; 

f)          expense tracking; 

g)         number of unbilled days and 

h)         number of uncollected days.

6.         Lead Analysis KPIs – acquiring new clients is crucial to your law firm’s success but finding them isn’t always as simple. Check which channels bring the highest number of leads by recording how prospective clients find your firm with the following: 

a)         cost of client acquisition; 

b)         total number of new clients; 

c)         number of new clients by source (referral, website, review site, etc.); 

d)         estimated average value of each new case; 

e)         number of consultation appointments set; 

f)          number of new cases/matters opened and 

g)         conversion rate of leads to clients.

The takeaway from this article – KPIs can accurately measure your law firm’s performance. And having quantifiable, outcome-based analytics will assist your practice – and your team – monitor the progress towards goals and objectives set. 

In this pursuit, we wish you the best of luck!

In the meantime, it’s important to note that if you’re using legal accounting software, you should check if financial reporting tools are available. With AJS’ full stack legal accounting and practice management software, we make it easy to access real-time data about your law firm’s transactions, accounts receivable, aging invoices, and more. Our reports are also customisable, so that you can tailor the data to reveal valuable insights that keep your law firm on track with its financial goals. 

This isn’t the only area where we can help with your KPIs. Get in touch with us to see how we can best support your strategic goal setting and progress tracking needs. 

In addition, if you are ready to incorporate a new tool into your existing accounting and practice management suite, or if you need to start from scratch, take a look at what AJS has to offer – we have the right combination of systems, resources and business partnerships to assist you with incorporating supportive legal technology into your practice. Effortlessly.

AJS is always here to help you, wherever and whenever possible!

– Written by Alicia Koch on behalf of AJS

(Sources used and to whom we owe thanks: Investopedia; KPI.org; Qlik; Indeed here and here and Lawpay)