Small Law Key Performance Indicators

SMALL LAW KEY PERFORMANCE INDICATORS

Use Metrics to Manage & Grow your PracticeOctober 14, 2016Mary Juetten

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2 Small Law KPIs with Mary Juetten

Presenter

Mary Juetten, founder and CEO of TraklightMary has dedicated her more-than-30-year career to helping businesses achieve and protect their success. Mary developed the only self-guided software platform that creates a custom intellectual property (IP) strategy and assesses business risk – Traklight.

In 2015, Mary cofounded Evolve Law and speaks internationally on change and technology adoption in the legal industry. Mary was named to the American Bar Association's Legal Resource Technology Center 2016 Women in Legal Tech list and FastCase Class of 2016. She now serves on the Group Legal Services Association (GLSA) Board.


KPIs: Use Metrics to Manage & Grow your Practice

KPI Overview– Who– What– Why– When – Where it worked

Clients First– Client Development– Pipeline

Getting Started on the Right Track for 2017– Full KPI Framework & Technology– Continuous Improvement


KPI Overview


KPI Overview: Ws

Who

What

Why – billable hour misconceptions

When

Where it worked – client experience

Q&A at the end of the presentation


WHO

Law firms are businesses

Accounting, payroll, KPIs are in addition to the practice of law can be overwhelming

Outsource or use technology

KPIs are for all size firms because they use the same principles; just add zeros

Use small firm examples here


WHAT

Key Performance Indicators are metrics for measuring all aspects of business and are beyond the traditional billable hour.

Law can borrow from other professional services and industries for KPIs.

Focus on outputs, client experience, collections rather than inputs such as hours billed.

Move from Profits per Partner.


WHY

Number one reason for business failure is lack of cash flow.

Cash is King

Clients bring cash & repeat business

Develop KPIs that support positive client experience and collected fees.

Don’t dwell on billing; focus on collections and happy clients.

Record all hours regardless of fee structure

Use the KPI data for creating pricing and billing models.


PEFORMANCE KPI: Misplaced Focus on Billable Hours.

Allan focused on billing, not collectingAt the end of the year, Allan was a billing machine at 116.25% utilization but 86.22% collected.Align your KPIs with firm goals: Cash is King.Have timekeeper’s focus on collections, not billing. 160 hours does not matter if only 120 hours are collected.Results are 88% when look at one month based on this data.Note that Firm Central provides collections realized by timekeeper or $ collected by timekeeper.


Thomson Reuters Small Law Firm KPI and Benchmark Survey

Participants:• 690 surveys sent out to customer panel June 2016• 62 Firms Responded: 10 Solos & 50% under 10 Attorneys

Stats:• 81% use technology (includes time & billing, & practice management)• 58% do NOT use KPIs beyond traditional billable hours• Only 6 or <10% use more than 4 KPIs– 19 use Collected Billings by Attorney– 15 measure overdue Accounts Receivable (A/R)– 14 track Matter Profitability– 3 measure client satisfaction (less than 5%)


WHEN

58 responses to TR Survey, 31 firms reported using either of the two profitability metrics:

Take-home dollars

Bank Balance

KPIs need to be timely to allow for corrective action.

Matter profitability was an option on the survey.


WHERE IT WORKED

Positive and Predictable Cash Flow:

Satisfied clients tend to pay and it’s easier to upsell or have happy clients refer friends and associates.

Start with client development KPIs, including pipeline and cost of client acquisition and measure firm culture and client experience.

Borrow from outside the law: Net Promoter Score (NPS)


CLIENT EXPERIENCE: Net Promoter Score (NPS)

Net Promoter Score (NPS) (%) The percentage of total clients responding to the survey question who are promoters less the percentage of total clients responding who are detractors.

Q: On a scale of one to ten (with one being not at all likely and ten being extremely likely), how likely are they are to recommend your firm to their friends, family, and colleagues?

Additional Question: Why or Why Not?Allow for feedback, good and bad.Help with action plan for improving NPS.Survey must be tracked, not anonymous. Technology:Google Documents or Survey Monkey, Excel for responses.


Clients First


KPI FrameworkFollow the Workflow

Client Development

Cost of Client Acquisition

Productivity

Profitability

Performance

Client Experience

Firm Culture


Focus on Clients: Happy Clients; Profitable Practice

Value of delivery

Transparency

What input do the clients have into your practice?

Borrow from outside the law:

Client Pipeline

Client Feedback

Client upsell or referral rate

Client conversion rate


Potential Client Pipeline

Help or support – outsource?

Targets – look backwards to measure first history if possible.

Just get started with a listing of potential clients & estimated revenue.

Terms:

Go | Get

Suspect, Prospect, Lead, Paused


CLIENT DEVELOPMENT: Pipeline

Adjusted Prospect Pipeline ($)Total dollar value of the Prospective Clients’ Matters on the Pipeline adjusted for likelihood of success divided by total Attorneys (and Paralegals in some cases*) to yield a dollar value.

Technology:

Can start with Excel and move to Customer Relationship Management (CRM).

Some Practice Management have CRM capability.

Targets:

Should tie into the monthly revenue in your budget.


Getting Started on the Right Track for 2017


Focus on Collections

Profitability on paper only if you never collect the cash.

Stats show that small law firms collect cash from 90 to 150 days after recording the hours.

If you have to pay all your bills within 30 to 60 days, you have a problem.

Focus on lowering the days that your cash is ”locked up.”

Important to calculate lock-up days for both the WIP and A/R.

Check on percentage of “old” A/R.

Deeper dive depending on the results.


KPI Framework: 40+ measures

22 SMALL LAW BENCHMARKS: Does your Profit Measure Up?

PROFITABILITY: WIP & A/R Lockup Days

Total days in the period divided by the WIP Turnover Days.

WIP Turnover Days are the Unbilled Time (WIP) for the same period divided by the average outstanding WIP balance at the beginning and end of the period.

Same formula for A/R, for example in a month of 31 days using the numbers here:

31/ ($500,000/(($125,000 +$531,250)))

2

23 SMALL LAW BENCHMARKS: Does your Profit Measure Up?

PROFITABILITY: Aging Tolerance

4- Profitability (f) Aging Tolerance (%)Total collections within 60 days divided by total billings.

Set deadline for recording WIP by month-end.

Policy to bill out all WIP each month (where practical) or at end of each engagement, regardless of timing.

Set payment terms.

Investigate factoring or other services if necessary.

Use e-billing and consider accepting credit cards.


Systems & Data

Systems – from manual to high tech, define your workflow. Pick the appropriate technology.

Garbage In; Garbage Out.

Check the data sources and set up as many links as possible.

For example, QuickBooks data to automatically populate your spreadsheet.


TargetsJust Get Started

Go back to the Previous Year or Years

Measure more often at the start, start monthly or weekly depending on KPI.

Do a first quarter review and make adjustments

Look for industry benchmarks but also outside to other professional services.

Targets depend on your circumstances!


Time is finite; Technology is not

Infinite possibilities:

Client Development – automation

Practice Management including time & billing

Accounting

Client Feedback

Excel

Document Signing

Document Storage for Business (secure)

Customer Relationship Management (CRM)


Dashboard: monitor frequently

Client Development

Client Acquisition Cost

Productivity

Profitability

Performance

Client Experience

Firm Culture


Continuous ImprovementDashboard Approach

Like the workflow and matching KPIs, improvement requires constant monitoring.

Change and experimentation mentality.

Learn to delegate and outsource.

Budget should not be just revenue divided by 12, build up costs and revenue, including pricing.

Enhance your Practice with enabling technology.

Measure KPIs regularly on Dashboard.

Review and Act upon the results, adjusting targets, workflow, resources, & technology.


Choosing Technology

Simple to use

Demand Metrics | Case studies

Measure Return on Investment (ROI)

Trial or free demo

Less is more

Feedback

Evaluate Client Experience

Start small and build

Interoperable tech

Be open to change


Questions


Small Law Firm KPIs: How to Measure Your Way to Greater Profits

In print October 2016

Order your copy today:

http://legalsolutions.com/Juetten

Practical Guide to implement KPI framework as a Dashboard requiring only spreadsheets

Mary Juetten

@maryjuetten

[email protected]

Evolvelawnow.com

http://legalsolutions.com/Juetten

mailto:[email protected]