The profit and market reputation is important for every law firm owner. However, there must be some yardstick by which the performance of the firm is measured. Key performance indicators KPI for law firms are indicators to track your firm’s profitability that go beyond the billable hours and financials. Advancement is knocking at the door, and the adoption of such techniques is important for law firms.
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IMPORTANCE OF KEY PERFORMANCE INDICATORS (KPIs)
One of the primary reasons for the failure of any business is the lack of funds. Money is one of the most important aspects of running a law firm. Once the KPI is rightfully aligned with the goals and targets of the firm, it can help in understanding the reason for success or failure.
While it is true that legal case management software can help generate reports and give profitability forecasts, there are other metrics that need to be set and measured regularly.
Furthermore, you don’t need to fix all KPI for law firms to measure and track only billable hours or client closing rates. You need to set the KPIs by keeping the overall competition in mind. This means, your rates must be reasonable and yet, your service must be the best in the competition.
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In this article, we will explore Key performance indicators (KPI) for law firms that can improve your profitability as well as market reputation.
5 KPI FOR LAW FIRMS TO MEASURE
1. Realization and realization reports
Realization is to understand what the firm is collecting and what the firm is paying. This includes the amount of time spent in a case, how long the client takes to give the payment after receiving the notice for payment, payment of stamp duties for the clients. The plan must be very clear as to analyzing the minimum amount of funds the firm must have at all times for its survival.
The client will not pay the bills as per your convenience, but as per their suitability. In this case, you can analyze the average time taken by clients to clear up the dues and set an automated payment reminder mail for follow-up. Additionally, in the long-term, if you see one client deliberately delaying payment, you can meet with them to discuss issues.
Make a realization report which shows intact the figures of expenses and future expenses and preparation for contingencies. At all times, there should be a back-up fund that has to be maintained by the profit fund.
2. Revenue and expenditure
It is very important to manage revenue and expenditure. Overall revenue generated during a particular time period is considered an important Key performance indicator (KPI) for law firms. In order to save money and earn a profit, you need to know where the major expenditures lie. It is important to do things more efficiently. Analyzing the aspect of where the firm is spending helps to discover the ways of more profit.
Technological advancement can help you manage your workload efficiently. It can help you take up more clients or cases. However, deciding on processes where the intervention of technology is helpful can be a challenge. With daily and monthly reports measuring every aspect of the business through key performance indicators (KPI) for law firms, you can easily identify gaps in your process.
For example, there are chances that a document might be lost due to some natural phenomenon or careless human action. Knowing this, you may decide to adopt a cloud-based legal case management software. Additionally, you can adopt proper calendaring methods to auto-update clients on each case status. With technology, you can also initiate a feedback loop triggered after each interaction with the client.
On similar lines, when it comes to calculating the billable hours of the law firms when done manually, there are chances that it may go wrong due to human error. So, automating this process helps to increase efficiency. As the work when done by a human can increase the administrative works and also the chances of error in high.
The major target is keeping the client happy and use the technology for the betterment and increasing efficiency. Higher the efficiency, the more effective is the working, the better the functioning of the firm. Increased efficiency will, in turn, increase the rate and quality of performance, which will, in turn, result in more cash flow into the firm because of the satisfaction provided by you at work.
Timekeeper simply means keeping track of the time and on the billable hours. As a law firm owner, you need to keep track of time spent on each client or task. This will also help you understand and keep a record of what task is time-consuming, which increases the billable hour, but the performance is not as expected. Better yet, you can figure out whether the fees you charge are justifiable or not. Billable hours and the time spent on working in that particular case are never the same, and thus keeping track of the same, i.e. billable hours is really necessary.
5. Distribution of work
The world is competitive. So, when you hire someone to do a task make sure firstly, they are worth it and secondly extract the best possible for the benefit of the firm.
Delegate the work necessarily. For example, when it comes to taking a printout, this task can be done by a person responsible for administrative work without engaging an associate in it. In this case, there is a disparity in pay even though the billable hour remains the same. Identifying and rectifying such small steps hold the key to success.
Law firms strive when they focus entirely on the clients and change to suit their demands. In such a scenario, you may feel that business advancement is difficult. However, with the right Key performance indicators (KPI) for law firms, you can measure and monitor your own performance. Measuring a simple KPI such as billable hours can help identify the difference between actual time spent and the time required to be spent. It can also reveal other information regarding your performance and client handling techniques. These metrics can become the guiding step towards your development.