To start, key performance indicators (KPI) are tools used to help measure and ensure the success of your law firm. They help answer questions about your firm's performance and your clients. KPIs can be used to measure how financially productive each lawyer in your firm is and the profit to work ratio that goes into each of your clients.
KPIs are also useful in ways beyond measuring the profit that a particular client brings in, and they can be used to reflect on your office's performance. Using performance indicators, your office can hold itself to a higher standard and become even more profitable. The thing that makes KPIs so valuable is that they can tell your office how much money you are making and point out areas of weakness. Sometimes an office thinks it is making more money than it is, and if you run your business under the assumption there is more money than there is, there can be severe consequences. There are a few crucial indicators that your firm should keep its eye on.
Dealing with clients is arguably the most critical and complex part of running a company regardless of the business. This is because clients represent many factors to a business. There are many KPIs to consider when measuring clients and what they are doing for your business. From how much your firm charges your clients to the time spent on each one. An important statistic to know is the number of matters opened. Client acquisition is essential for a law firm because while it is good to earn client loyalty, you cannot rely on existing clients to bring in enough revenue to keep operations at standard levels.
Along with matters opened, your firm should also consider the number of matters referred to the firm. This will bring in revenue and, more importantly, give you an idea of the message your current and potential clients see when looking at your business. Understanding our clients and their individual needs helps guide our firm or any other company, even within our own business.
To truly understand the numbers behind your clients, it is essential to look at more than just how many you have and how much your business is making from each one. It would be best to consider your firm's client acquisition and retention rate. Knowing how and why you are getting the clients you are is a great way to see your business's message indirectly. A final KPI to practice when dealing with clients is to get a net promoter score (NPS); this is done by asking your clients how satisfied they are with your work and how likely they are to recommend you in the future. A simple way to do this is on a scale of 1-10.
Law firms are just like any other business when it comes to marketing. The traffic your firm sees in person and online are an essential first step in understanding your business. The types of KPIs to consider when looking at the marketing of your company include not only your actions taken to market your firm but also its natural marketability. Here at Interactive Accountants, we take the marketability of the businesses we help seriously because helping them grow helps us grow.
The essence of marketing is understanding and controlling your company, business, or firm's message. You want your brand to reflect the type of work you do, the variety of clients you help, and this one is a bit tricky, but a good business can almost say their prices without actually having to drop a number. That last tip is all wrapped in the message; from the type of advertising you do to the design of your website, all aspects of your firm should be understandable for those interested in your services.
There are a few key concepts to keep in mind when it comes to financing. The first and most obvious is revenue; all businesses need revenue to continue functioning. Knowing how much revenue your firm brings in is vital to keep up with expenses and plan for the future. Other financial KPIs to measure include costs, collections, and overhead. One KPI to focus on when looking at your finances is how much your clients are costing you and the return on that investment (ROI) you should see. Keeping your books in order and knowing how much money is coming and going is one of the keys to success. Here at Interactive Accountants, that's just what we do; we help you keep track of your finances. Law firms have many variable expenses and profits going on all the time. Having an effective system to help keep track of and manage these numbers is necessary to remain afloat. One manageable KPI is to keep your labor expenses under 35% of your overall company expenses. Labor makes a human company run, but it is essential not to let it detriment your profits. Helping you with your finances is what we do, whether you are already one of our clients or if this article is your first exposure to us.
The most essential and helpful term to hold onto when thinking about productivity is billing. This centers around work done and the billing attached to it. Whether that means billable hours or the rate at which work is split up or financed. Equating your work with a billable number is how you maximize your productivity because once you know how much work you're doing, you know how much to charge. A good practice is to know your average billing rate and how it will apply to your work, your assistant's billable hours, and your clients, especially if specific changes need to be made. Additionally, the percentage of partner hours logged in your firm is a needed variable to know. Knowing your partner's hours will not only tell you how much they are making, but also it is an excellent reference to see the work they are putting in and see if it is where it needs to be.
It is also important to know the rate at which these things are happening, from the hours of work put in each week to the billable hours and how they are spread out. Another important KPI to reflect on is originating revenue; your firm needs to ensure that while it sees a profit as a whole, it also makes sure to compensate employees for their work fairly. While this may seem like a no-brainer, issues around origination happen all-time in firms when more than one person works on a single case. Continuing with work, your average work rate is also essential to know because it reflects the work done in your firm, and it is a possible expense. It's best to think of it as finding out what x equals in the equation. You need to figure out what x equals to solve the equation and make changes if required. Here at Interactive Accountants, we excel at helping you and your firm apply these tips to things from pricing to payroll. We do it all and more on a monthly cycle.
Most KPIs for your business's performance come in monthly cycles. Measuring your firm's performance monthly is an efficient way to let enough information build-up to have a quantifiable set of data without letting it get out of hand. The performance of your business is a combination of all the other mentioned factors and more because it is the most measurable of all the KPIs when you choose to take action and stay up to date with whatever factors that go into your business, you are making it so that problems cannot sneak up on you.
Here at Interactive Accountants, helping businesses grow and succeed financially is our number one goal. We are here to help! If you're still not convinced yet to give us a call, feel free to look at our other blogs regarding the help we offer various businesses and offices.
If you are a professional in any field that these tips apply to, schedule a free consultation here with our owner Matthew Shiebler, CPA. He's been practicing accounting for over 25 years now and is a business owner, just like you!