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Your firm isn’t a traditional one. Why are you measuring its success like it is? Learn how to build a successful business model in this free Clio webinar. When thinking about KPIs (key performance indicators), many lawyers think that simply looking at revenues is enough to keep track of how well their practices are doing. In this webinar, you’ll learn more about realization rate, profit per partner—and why these traditional metrics don’t necessarily work anymore for today’s small and solo firms. Join Clio’s own George Psiharis and Joshua Lenon as we show you the measures that are relevant to today’s firms—and the importance of return on investment (ROI) in every legal practice. In this webinar, we’ll cover: - Basic law firm KPIs your firm should be measuring (including utilization rate, realization rate and collection rate) - How to shift your KPI focus from the billable hour to the client - How to measure your firm’s success like a startup - Find out how to maximize your ROI by thinking like an entrepreneur and building a successful business model for your firm!
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Entrepreneurship in Law: KPIs, Metrics, and the Modern Law Practice
A Clio Webinar by George Psiharis
@GeorgePsiharis
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a bit about me (George Psiharis)
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Vice President of Business Development & Partnerships
In my role, I work with:
• legal professionals;
• law societies and bar associations;
• law schools;
• clio certified consultants;
• and Clio’s partners to grow our business and create long-term value for our customers.
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this means that…
• I’m an in-house entrepreneur;
• I’m constantly conducting new business experiments;
• I identify, measure, and report on Key Performance Indicators (KPIs) on each and every experiment.
• my decisions are driven data;
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our agenda
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i. Traditional law firm metrics (10 minutes);
ii. Thinking like an entrepreneur (10 minutes);
iii. Measuring your practice like a startup (10 minutes);
iv. Building a successful business model (15 minutes).
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i. traditional law firm metrics
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Source: http://fortune.com/2014/08/06/15-most-profitable-business-sectors/
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this year, law firms ranked #2 - profit margin of 17.8%
(down from #1 and 18.3% in 2013)
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i. Available hours;
ii. Utilization rate;
iii. Average hourly rate;
iv. Realization rate;
v. Collection rate.
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i. Available Hours
The total number of hours that are available to be billed.
Think of this as your maximum inventory, e.g. 40 hours/week
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ii. Utilization Rate
chargeable hours available hours
Of your available hours, how many are actually chargeable, netting out all non-client facing activities?
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ii. Average hourly rate
billable value of utilized hours # of utilized hours
What is the average sale price of a utilized hour of your time?
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ii. Realization rate
value of billed hours value of utilized hours
Considering the value of your utilized hours, how much of what you record is ending up on invoices delivered
to your clients?
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ii. Collection rate
total collected revenue value of billed hours
The all important metric: how much of what you bill actually converts to positive cash flow for your practice?
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Let’s work through an example…
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i. Mike Ross worked 60 hours last week.
ii. He spent 10 of those hours in non-billable meetings.
iii. His average hourly rate is $250.
iv. He billed a total of $10,000 last week.
v. His finance team collected a total of $7,000.
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i. Available hours = 60, max billable = $250 x 60 = 15,000
ii. Utilization rate = 50/60 or 83%
iii. Average hourly rate = $250
iv. Realization rate = $10,000 / ($250 x 50) or 80%
v. Collection rate = $7,000 / $10,000 = 70%
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If we take collected revenue and subtract fixed
and variable costs we can determine profits and
profit margins (where we started).
Another very popular traditional metrics is PPP -
Profits per Partner.
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does all this sound familiar so far?
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ii. think like an entrepreneur.
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1. Traditional law firm KPIs revolve
around billable hours and the fee
earner, not the customer.
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2. The single most important KPI in any
business is ROI, not PPP.
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3. These metrics are frozen in time and
have not adapted to a disrupted
market.
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Definition of an entrepreneur:
“a person who organizes and
operates a business or businesses,
taking on greater than normal
financial risks in order to do so.”
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Average debt of the class of 2013: $125,000
Source: http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-law-schools/grad-debt-rankings
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what are some examples of
entrepreneurship in law?
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solo practices and small firms
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According to the American Bar Association 50% of private
practitioners are solos, while 70% work in firms of 10 lawyers or
fewer.
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alternative fee arrangements
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examples of alternative fees
- Capped fees;
- Blended rates;
- Value-based fees;
- Fixed / flat fees;
- Portfolio-based fees;
- Performance-based / contingency fees
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alternative practice models
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alternative practice models
- Virtual and distributed law firms;
- Corporate secondments / in-house positions
- Legal freelancers;
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self-help & online legal forms
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we’re screwed…
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There are a number of opportunities to
take risks, experiment, and build success
in this space - but before you do, you have
to know what to measure an look for.
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iii. measuring your practice like a startup
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1. look at customer acquisition as a
funnel, across the business
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# of customer inquiries
# of converted / new customers
average annual revenue per customer
customer retention rate
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2. consider contribution margin
instead of profit per partner
(PPP)
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contribution margin:
Revenue per unit sold less the variable cost per unit.
you can then subtract fixed costs to calculate profits and profit margins.
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contribution margin per practice area
contribution margin per matter
contribution margin per customer
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contribution margin per customer
Average Cost of Acquiring a Customer
Average revenue per customer
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$100,000 on marketing and business development
This resulted in 20 new customers
Average CAC = $100,000/20 or $5000
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These 20 new customers generated $154,000 in collected revenue this year
Or $7700 in annual revenue per new customer.
Your contribution margin per customer is $7700 - $5000 = $2700
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Customers over this average are likely the most desirable.
Customers under this average are typically not profitable.
You can apply this to individual matters and roll it up into practice area totals.
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3. set yourself up to track
Return on Investment (ROI) for
everything you try.
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4. Based on ROI, identify your
ideal customer profile.
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iv. building a successful business model
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we’re screwed…
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Unbundling
+
Competition
+
IT
= Commoditization
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what these premium brands offer is
superior customer service, or what
we at Clio might call customer
experience.
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your law firm is a service company that just happens to sell legal
advice ‟"
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build and differentiate your customer
experience based on your ideal
customer profile.
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your firm here!
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putting KPIs and ideal customer
profiles into action.
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Branigan Robertson:
How I Started My Own Law Firm Right After Law School.
http://landing.goclio.com/How-I-Started-My-Own-Law-Firm-Right-After-Law-School-Web.html
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Thank you.
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Appendix A- Useful Resources!• http://fortune.com/2014/08/06/15-most-profitable-business-sectors/!• http://www.managingpartner.com/sites/default/files/ARK1708%20-%20Financial%20Planning%20and
%20Management%20for%20Law%20Firms_Sample_Chapter.pdf!• http://www.law21.ca/2013/08/law-firm-profitability-metrics-just-subtract-lawyers/!• http://www.americanbar.org/publications/law_practice_magazine/2013/september-october/your-financial-
dashboard.html!• http://www.altmanweil.com/dir_docs/resource/41ff6ad2-da67-406e-9999-ca2aaae63539_document.pdf!• http://www.managingpartnerforum.org/tasks/sites/mpf/assets/image/MPF%20-%202012%20Survey%20of
%20LF%20Economics%20-%20Exec%20Summary%20-%209-20-12.pdf!• http://insidelegal.typepad.com/files/ILTAInsideLegalTechnologyPurchasingSurvey2012.pdf !• http://www.appliedstrategies.ca/documents/kpi_primer.php !• http://landing.goclio.com/How-I-Started-My-Own-Law-Firm-Right-After-Law-School-Web.html !
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Appendix B - Business Model Generation!• http://www.businessmodelgeneration.com/canvas/bmc!
• https://www.youtube.com/watch?v=QoAOzMTLP5s !
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Entrepreneurship in Law: KPIs, Metrics, and the Modern Law Practice
A Clio Webinar by George Psiharis
@GeorgePsiharis
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