Do you know how efficient your practice is? Here’s why you need to find out—and how.
Lawyers who lead their own law firms face a confusing and circular challenge: The practice of law is how you make a living. But you’re not only running a law firm. You’re also managing a small business. Though managing the business side of your firm is essential to its success, it's the practice of law that creates revenue.
Most likely, you don’t have the resources to add in-house business staff. So how do you keep the business side of your practice from taking away from your income? This is one of the topics of a new white paper from Thomson Reuters, “The Winning Approach: How Small Law Firms Can Overcome Common Business Challenges.”
Many small firms struggle even when they have an abundance of clients. That’s often because they don’t measure how well or how badly the business side is running. One solution, which this new white paper discusses, is the use of what are called key performance indicators. KPIs are a relatively new idea in the practice of law. But they’ve been used for decades in accounting, engineering, and other professions. And they can help you develop a more disciplined approach that can make your practice more productive and more profitable.
Here are some business fundamentals your firm can measure:
+ Client development.
Will your firm earn sufficient revenue from potential clients? This metric measures the total adjusted value of prospective clients' matters per lawyer.
+ Client acquisition costs.
How much are you spending to generate new business? One way to measure is to add up the money you’ve spent on sales and marketing, then adding the opportunity cost of staff or lawyer time. Then divide that sum by the number of new clients your firm has actually brought in.
A useful KPI here is the total money your firm collected in a 60-day period divided by the total billings.
One way to measure it: How much money is collected per lawyer compared to that lawyer’s total billing?
+ Client experience.
In order to grow your practice, it pays to measure and monitor your client satisfaction. A useful measurement here is the net promoter score, which is the percentage of clients who promote your firm minus the percentage who are detractors. This post provides an introduction to the use of net promoter scores in a legal practice.
Examining these measurements on a monthly basis can help your firm track time spent on cases and projects and help you set fees that allow you to grow. They can also help you determine if you need and can afford to hire more staff or add new management technology.
Your outside accountant or bookkeeper can help with setting up a KPI-based management system. By the way: Delegating non-law work as much as possible to outside firms is another way to minimize time spent on administrative tasks.
Consider these as starting points to greater efficiency—and a more profitable use of your time. Learn more by downloading The Winning Approach White Paper here