As 2017 winds down, take a look at your current metrics for measuring firm success. Each month, you likely review your firm financial results, but metrics or key performance indicators (KPIs) are different. KPIs are a collection of measures used for action and change, not just for reporting and filings. Resolve that 2018 will be the year that you proactively and regularly review performance metrics.
Where to Start?
Identify your challenges by answering the following questions:
- Are you short on cash?
- Does your practice lack clients?
- Are you spending time on administration at the expense of practicing?
If you answered, yes, yes, and yes, it’s time to take a step back and assess the root cause of these challenges. Happy, satisfied customers are the cornerstone to any business, and law firm clients are no different. However, even with great clients, proper billing and collections policies are needed to ensure adequate cash flow.
Focus First on Clients
It’s obvious that you need paying clients to generate cash. That is not the only reason to focus on clients. Repeat business and word of mouth referrals are easier and less expensive than generating completely new leads with unknown consumers or businesses.
Therefore, once you have a client, it’s best to keep them happy, and you will only know if they are pleased if you ask!
Next is Cash
A close second in terms of importance is monitoring cash in the bank, which is the lifeblood of any business. A cash shortage has many different causes including the following:
- Lack of clients (paying not pro bono)
- Clients not paying their bills
- Not charging enough
- Not sending out bills in a timely fashion
- Spending too much on salaries or overhead expenses
Attorneys are not known for being proactive with billings and collections. The bottom line is without data and measurements, you cannot solve your money issues.
Like a good exercise regime, just get started and definitely start small. However, force yourself to gather data and measure each month to start. If you have multiple challenges, triage them by ranking from the most urgent to least pressing. Find the right measure for each problem and involve your team in analyzing the results.
Implement three KPIs to answer each of these questions:
1. Are your clients happy?
Use Net Promoter Score (NPS) to measure satisfaction by surveying your clients about how likely they are to recommend you or your firm to others. Read more here.
2. Are you collecting enough cash fast enough?
Answer with the accounts receivable (A/R) listing including the age of all customer amounts owing to your firm. Focus on all amounts over 30 days because you cannot afford to do the work without collecting the fees. Read more here.
3. What percentage of your billed amounts do you actually collect?
Focus on how much cash is ultimately collected versus billed as the important personal metric, rather than how many billable hours are recorded by each timekeeper. Read more here.
Start with at least the past six months of data for these three KPIs. Search for strange or one-time occurrences as outliers and discard those from your analysis. Look at your KPIs each month and for any problem areas, more often. For example, if a large portion of your A/R is extremely old, make that a priority each week until it’s under control.
As I like to say when I present on KPIs, do not bother to set up a framework, gather data, and run metric reports if you are not willing to change. The “I” in the acronym KPI means indicator, and once you have an indication of a successful or poor approach, that likely means some type of action. You may even receive feedback about your practice and team that requires additional training or discipline, so be open to change.
For example, if your collections percentage is 80% of everything that you bill, take a step back and analyze from all sides:
- Is one matter skewing the results or is this a pattern?
- If too many hours are billed, are you spending too much time on the matter or did you not estimate it properly? Are the right people working on the matter?
- Does everyone in the firm understand that collections are the most important KPI?
- If a flat fee, why did the client not pay the full amount?
- Did you wait too long to bill after the work was done?
- Do you not accept all types of payment, including online credit cards?
According to lawyers who have started gathering data and measuring, KPIs give them valuable insights and action items to improve their bottom lines. The above measures do not require any fancy technology or systems other than an accounting or practice management system plus free survey monkey solution for the NPS. It’s best to set up your data and KPIs on an Excel spreadsheet, but it’s not required.
We all should enjoy our work and assessing KPIs can help by identifying bottlenecks and areas for improvement. By alleviating stress, everyone in the work environment benefits. A final note: ensure that you keep track of your time as important input data. More here in a recent article called, “Time is the New Black.”
About the Author
Mary Juetten is the founder and CEO of Traklight, a cloud-based platform for tracking and protecting intellectual property, and is the co-founder and managing director of Evolve Law, a membership organization of legal entrepreneurs focused on innovation and the future of law. Contact Mary on Twitter @maryjuetten.