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KPIs Key Performance Indicators & Technology

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5 WsKPI Overview

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WHOLaw firms are businessesAccounting, payroll, KPIs are in addition to the practice of law & can be overwhelmingOutsource or use technologyKPIs are for all size firms because use the same principles; just add zeros

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WHAT Key Performance Indicators are metrics for measuring all aspects of business and are beyond the traditional billable hour.KPIs are not “check the box” and are not like financials – they are actionableLaw can borrow from other professional services and industries for KPIs & Technology.Focus on outputs, client experience, collections rather than inputs such as hours billed.Move from Profits per Partner.

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WHYNumber 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 collections.Don’t dwell on billable hours; focus on happy clients and collections. Record all hours regardless of fee structure.Use the KPI data for creating pricing and billing models.

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PEFORMANCE KPI: Misplaced Focus on Billable Hours.Allan focused on billing, not collecting

At the end of the year, Allan was a billing machine at 116.25% utilization but 86.22% collected.

For one month he was at 88% using Billings Collected KPI

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.

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Thomson Reuters Small Law Firm KPI and Benchmark SurveyParticipants:

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

Stats:• 81% use technology (however time & billing (34%) & practice management (44%)

included)• 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%)

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WHEN58 responses to TR Survey, 31 firms reported using either of the two profitability metrics:

Take-home dollarsBank Balance

KPIs need to be timely to allow for corrective action.Matter profitability was an option on the survey.

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WHERE IT WORKEDPositive and Predictable Cash Flow comes from Clients.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)

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KPI ExamplesStart with Clients

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Focus on Clients: Happy Clients; Profitable Practice

What input do the clients have into your practice? What will you do with that input?Borrow from outside of the legal industry:

Value of deliveryTransparencyFile TurnaroundCustomer Satisfaction (NPS)

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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?

Why or Why Not?” as an optional question

Allow for feedback, good and bad.

Survey must be tracked, not anonymous.

Technology:

Google Documents or Survey Monkey, Excel for responses.

Follow-up emails or calls.

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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

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CLIENT DEVELOPMENT: PipelineAdjusted 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.

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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 WIP and A/R. Check on percentage of ”old” A/R.Deeper dive depending on results.

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PROFITABILITY: Aging ToleranceProfitability (f) Aging Tolerance (%)

Total collections within 60 days divided by total billings.

Set deadline for recording WIP by month-end & payment terms.

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

Investigate factoring or other services if necessary. Use e-billing and consider accepting credit cards.

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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

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PROFITABILITY : Contribution Margin by MatterLook at the mini profit and loss by firm by month

PI firm with two partners so overall was 49% in Jan but OF was 60% and PR was 46%.

Use top-level and drill down

Remember this uses Direct Costs which is at salary and/or draw costs; not billing rates (which is leverage)

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Options for Workflow

KPI Framework

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Make a Plan

Pick your biggest pain point

Design your survey or feedback - make it easy

for clients (WPLG ex)

Test it on a small group (McCarthy Tetrault)

Don’t be afraid to make changes (Modern

Law)

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KPI FrameworkWorkflow Driven

1. Client Development 2. Cost of Client Acquisition3. Productivity4. Profitability5. Performance6. Client Experience7. Firm Culture

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TargetsJust Get Started

Go back to the Previous Year or Years for a LIMITED number of KPIs.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.This is not a check the box exercise or like financials which are historical info – KPIs are actionable

Targets depend on your circumstances!

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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.

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Continuous Improvement Dashboard 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.

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Questions

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

In print October 2016Order your copy today:http://legalsolutions.com/Juetten20Juetten for 20% discount

Free Starter spreadsheet on Lawyerist.com

Mary Juetten@maryjuettenmejuetten@traklight.comEvolvelawnow.com