KPIs and Metrics
This blog is a carry-over from our prior blog entitled Law Firm Dashboards 101. In this blog, I will delve more deeply into KPIs and Metrics. To recap what was discussed in the prior blog, according to Ben Olmos in an article in Azcentral.com, “the primary difference between a KPI and a metric is that a KPI explains what is being measured, while a metric is the numeric value of the measure itself.”
I also rather like the description found on the KPI.org website that says, Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward intended results. So, a KPI will require a metric plus a target value, with the target value (goal or comparison) as the intended result.
Your legal billing software should have the necessary tools to help you manage these KPIs, either by way of reporting or dashboarding. However, the delivery system is not the most crucial factor; the most important element is ensuring that the information being provided is read.
My suggestion is to reduce the volume of reports and to create more dashboards.
The Importance of KPIs
KPIs allow for the real time measurement of goals. They provide accountability and aid in strategic decision making,
You may have heard the phrase “you cannot manage what you do not measure.” I believe the addition of a goal makes managing what is measured far easier. For example, if an individual is asked to provide a goal for hours and collections for the next year, having real time access to data that indicates progress towards that goal (target value), would be of benefit to them.
Merriam Webster defines accountability as an obligation to accept responsibility or to account for one’s actions. It is certainly easier to expect accountability if you are providing the information necessary to manage and track that “responsibility.”
We all make decisions every day. Recently, my wife and I went through the process of selling our home. The realtor asked at what price we wanted to list. We had an idea, but asked him to give us some information such as comparative prices in the area, and the range of square foot values; he had this at his fingertips. Making an informed decision helped us earn more from the sale of our home than we had originally anticipated. The same is true with KPIs; the information will help stakeholders make strategic decisions.
- Unbilled days
- Uncollected days
- Net income as a percentage of revenue
- Fees billed per month
- Fees collected per month
- Firm debt (lines of credit, credit cards, loans, etc.)
- Average net overhead
- Amount of revenue per square foot of office space
- Realization rate
- Collection rate
- Current run rate (projected annual revenue based on the past three months)
- Current anticipated annual costs (total anticipated annual costs, including salaries, based on the last three month’s)
- Difference between your current run rate and current anticipated annual costs
- Bank account balances
- Cash flow analysis
- Outstanding accounts receivable (AR)
- Billed rates
- Profitability ratios
- Billable hours per full-time equivalent timekeeper (FTE)
- Percentage of partner hours
- Utilization rate
- Billings per FTE
- Average bill rate
- Average work rate
- Number of matters opened
- Staffing ratio
- Cost recovery revenue per matter
- Leverage rates
- Workload metrics
- Work-in-process fees and costs
- Number of marketing actions taken
- Marketing budget ratio (the ratio of the total marketing spent to the total fees billed)
- Marketing cost per client (the ratio of the total marketing spent to the number of clients billed)
- Firm website traffic
- Email marketing performance
- Website landing page conversions
- Number of client referrals
- Client satisfaction scores
- Client retention rates
What is next?
There are over 40 KPIs listed above, and this does not include those items that can be tracked and reported in multiple ways. That may add another dozen or so to the list. One person trying to manage all of this would be a mistake. Delegate – do not take on too many or you will be overwhelmed.
Start by creating dashboards using charts and graphs. Your legal accounting software should allow you to do this, allowing busy stakeholders to track far more KPIs than if they are required to read through voluminous reports. This will enable them to pin-point areas where greater analysis is needed.
Break KPIs down into manageable groups. An associate may only need to see their worked and billed hours, collections, worked and billed rates, and write-offs/write-downs; a partner, on the other hand, may need to see all of those plus KPIs related to matters and clients, work-in-process, accounts receivable, and some of the financial KPIs.
The KPIs in the “other” category can be managed by administrative and marketing professionals who in turn, can provide periodic feedback to management.
Firm management will need access to more KPIs than any other group because they are not just dealing with individual goals, but also with firm goals, as well. They should still be selective about what KPIs they will manage, but there is no doubt that with the use of dashboards, they will be able to manage far more.
KPIs and metrics are necessary tools in any law firm so spend the appropriate time determining what individual or firm goals are key.
Encourage stakeholders to manage, and be accountable for, their individual goals by providing them the means to do so. If stakeholders are waiting for a monthly report to manage goals, they are probably waiting too long. The information contained in reports is static and during the time they are waiting for a report, things can occur that may influence a goal.
In my next post I will take on the KPIs listed in the “Financial” group above.
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About Rob McKay
Rob McKay, CLM serves as Product Manager at Coyote Analytics, where he focuses on helping the company’s developers design new and innovative additions to our software applications. Rob previously spent more than 25 years managing law firms in Florida and Texas. He can be reached at firstname.lastname@example.org.
About Coyote Analytics
Coyote Analytics offers a complete financial software system (time, billing, accounting) as well as a full practice management solution (calendar, docketing, document management, forms, contacts) to assist firms in managing the business of law. Coyote Analytics’ program was built through a collaborative effort with clients. It offers a simple, easy-to-navigate interface, a robust feature set, and great customer service, all at a reasonable price point.