Iridium Technology ask: is your law firm tracking the right KPIs?
Law firms, like any other business, must continuously track their key performance indicators (KPIs). These metrics go far past the Billable Hours metric that most attorneys track closely and are a great way to help legal teams better manage revenue and expenses. KPIs provide law firm partners and administrators with data analytics that provide an overview of performance for the total firm and across the various firm “slices” such as by timekeeper, practice group, or office. To get the maximum benefit from tracking KPIs, law firms must choose their KPIs wisely. Below are the KPIs that every law firm should track to boost firm revenue and profitability.
Monthly Client Acquisition
Many law firms have goals identifying how many new clients they want to acquire each month. Client acquisition is essential, as law firms must continually gain new clients to provide revenue growth. A BI platform will automatically track client acquisitions and allow administrators to determine not only how clients are acquired but also the cost of client acquisition.
Inventory Management (Billing Hygiene)
Inventory management can become quite complicated, but a BI solution can simplify it by putting critical inventory data on the desktops of all attorneys. Law firms can implement basic inventory management by presenting metrics such as time not billed, disbursements not billed, and accounts receivable. A BI solution will allow attorneys to drill into these metrics, for example, focusing on open invoices over 90 days.
Monitoring revenue metrics means a lot more than just tracking Cash Collected. Tracking revenue means reporting on the entire revenue waterfall: starting with time entry and time posting, and working through bills, collections, and write-offs. A BI solution will identify the leakage at each phase of the revenue cycle, providing firm management with the tools they need to minimize leakage and improve profitability. Another important revenue metric is billing speed: we all know that the fast collections are directly correlated with reduced write-offs.
Revenue metrics are also great candidates for automatic workflows that increase efficiency and make sure that all timekeepers are regularly information regarding their billing and collections statistics.
Law firm leaders should always understand the basic financial statements of their business. Documents such as income statements and statements of cash flow allow law firms to identify when their firm is improving, and when performance needs improvement. Financial statements also provide a rich source of KPIs. Practice group leaders, for example, need to be able to track their revenue and expenses versus budget and focus in exceptions that have been highlighted by their dashboards. Comparing key financial metrics versus the prior year or on a rolling 12-month basis can also provide critical insights into firm or practice group performance.
Analyzing profitability data is extremely important to a law firm, but many firms shy away from this analysis because it is too complicated to pull together. This analysis must measure gross and net contribution for any firm “slice” of data such as by attorney or by practice group. BI/profitability systems allow firms to determine the cost of any timeslip. The costs of the timeslips can then be rolled up to report on profitability for all firm slices, resulting in highly actionable data. If there needs to be “one KPI to rule them all,” then that KPI must be Profitability.
Use a BI Solution That Tracks All Your KPIs
If you are a law firm leader, then you know that you have a lot of different metrics to track. You also know how difficult that is at times. At Iridium Technology, we make it easy by offering you a BI solution that tracks your most important KPIs, enabling you to see both the “big picture” trends and to be able to drill down to details. Call us today at (610)-397-8672 for your free consultation to learn more.