What are the Three Key Performance Indicators Best for Tracking in a Profitable Law Firm?
As any law firm executive knows, tracking metrics is crucial to drive return on equity and maintain profitability. It can be a painstaking process that can be time-consuming and difficult to implement. It’s not easy to determine which data is important and which is not. It’s all too common for law firms to track data that’s not going to do anything for their business. The result is a lot of time wasted collecting and analyzing data that has no bearing on their bottom line.
Lynda Artesani answering one of the questions asked by a law firm client:
"How do other law firms track their key performance indicators (KPIs)?"
Our preferred accounting platform, QuickBooks Online Advanced, gives us the flexibility to use custom fields feature to creatively think "outside the box" and track what our experience tells us are the best key performance indicators (KPIs). We look at how they fit with the legal landscape.
Let's discuss the three most popular KPI's for law firms and what each one means.
1) Number of cases won/settled/clients served
For most law firms, this would be the most preferred KPI as it gives you a quick and easy way to measure your performance and the performance of the attorneys on your staff. You can easily see what is working and what isn't.Tracking your matters from the lead source through the beginning of the case throughout its lifecycle will help you determine what is working at the firm. A simple custom field, not client-facing, will be just what you need to track using a dropdown list with win/settled/lost as your selection choices. This box will be ticked at the end of the client engagement.
2) Quality of client/Quality of services provided
While the number of cases won/lost is a good KPI on its own, the reality is in order to get to an even deeper level of the overall results, the attorneys should also check the quality of the client, the quality of the law firm overall, and the quality of the legal services provided. This one is a more complex metric to track with a custom field. But you can use this as a talking point in your weekly partner meetings or staff meetings. Use a rating system to rate your client and rate your services provided to the client. A custom field titled with a dropdown list of 1-5 will get you that metric. This will also be set up as a client metric that will be added to the final invoice that is not seen by the client.
3) Client Satisfaction Score
What you need to understand is that client satisfaction is paramount to a successful law firm. Typically, the number one way to gaining more clients is referrals. A happy client will refer your firm to another client. Client relationships are what can make or break a firm. We will often look at that cycle of a client. Communication with the client is critical when it comes to client happiness. The number one complaint with law firm clients is that the attorney kept them in the dark. The client satisfaction score becomes more of an irritant when the client is ignored and not kept informed.
Hire the Right Professional
Law firms that have been in business for many years have accumulated their data in various ways. There is a common practice by many law firms of storing data in a file cabinet which is then kept locked away or tracked in multiple databases that change annually. Maybe it is on numerous spreadsheets. These law firms don't have a clear financial picture over time.
By hiring the right legal accounting firm, we will evaluate your data to track your law firm's performance and monitor the performance of your associates to help you identify areas of weakness and improve your firm. We will often see trends in data over a period of time that your average bookkeeper may miss because they are not as versed in the industry.
We can provide you a "picture" of the financial health of your law firm. This information can be used to analyze and interpret the financial statements of your law firm. Secondly, you can use the data, or the information provided by the analytics to identify weak areas and improve your law firm.
If you are an accountant or bookkeeper and want to learn more about our methods to track KPIs for law firms, join us in the, Accountants Law Lab.
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