As you may know from prior posts, we believe strongly in the proper use of business analytics to help you run your business. There are many articles on this topic. KPIs (Key Performance Indicators) are important for many reasons and may be used in different areas of your company, e.g., in HR, measuring, employee turnover or compensation metrics; in Finance, measuring profit margins or balance sheet ratios; and in Sales, measuring conversion rates. Although there are many KPIs you could be measuring, we think these four are the most important for law firm management.
1. Intakes, including referral sources.
It is essential to know how many new clients you are getting, and where they are coming from. You can then track both of these over a period of time to give your firm excellent insight into client sources and, importantly, client acquisition costs. Additionally, identifying seasonal trends, if any, for new clients will help you budget and staff properly.
2. Cycle time (a/k/a Time on Desk).
When managing the operations of your firm, it is helpful to know how long you have a case – or certain case types – in-house before resolution. For example, knowing the intake date through settlement date, or intake date through trial date may give you significant insight into the underlying costs associated with different cases.
3. Average Client Fees.
Knowing the average case or client fees is helpful because it may give insight into many different areas of your business, including for example, whether certain case types, attorneys, or geographies yield better values, and/or whether your business is affected by seasonality or some other factors that you may not be able to control or for which you may be able to plan.
Profit is the ultimate measure of an owner’s return on investment. Profitability measures the income or operating success of an entity over a given period of time and can be measured in different ways, including, for example, net operating profit, overall net income, or net income per attorney. This information is useful when measured over time as part of a trending analysis or in comparison to others in the industry.