How to measure and improve the value of the time you’re already paying for.
At FWO, we work exclusively with SME law firms across Australia to help them understand and improve the financial levers that drive profitability. One of the most powerful tools in our toolkit is the efficiency factor. A single number that tells you how well your firm is converting paid time into billed revenue.
What is the efficiency factor?
The efficiency factor answers the question: “How effectively are we using the time we’re paying for?”
Formula: Efficiency Factor = Professional Fees Billed ÷ Capacity
Capacity includes each fee earner’s standard hours, target productivity, and charge rate.
Score interpretation
How to read your efficiency factor:
- Over 100%: Very efficient. You may need more capacity to grow.
- 90–100%: Efficient with minor improvement room.
- 75–90%: Moderate spare capacity and growth potential.
- Under 75%: Major opportunity to unlock profit and reduce waste.
How billing efficiency fits in
Billing efficiency and the efficiency factor are related but not the same thing. Billing efficiency measures the percentage of recorded time that ends up being billed to clients. The efficiency factor measures how well you are using the total time you are paying for, billable or otherwise.
Both matter. Strong billing efficiency means fee earners are not writing down WIP or losing billable hours through delayed invoicing. A strong efficiency factor means the firm is extracting genuine financial value from every fee earner’s time.
If billing efficiency is low, fix the billing process: tighten time entry, centralise invoicing, and remove discretion from fee earners. If the efficiency factor is low, the issue is broader: capacity utilisation, workflow planning, or staffing structure.
WIP accounting and why it drives the efficiency factor
WIP accounting (work in progress accounting) is the discipline of recognising fee earner time as it is performed, not when it is billed. For law firms, WIP is the financial bridge between work done and revenue collected.
Sloppy WIP accounting is one of the biggest hidden drags on the efficiency factor. Ineffective WIP management is often an overlooked factor impacting efficiency. When time is not entered daily, it gets lost. When WIP is not converted to invoices promptly, cash flow stalls. When WIP is written down inconsistently, the firm absorbs the cost of work it has already paid for.
Tight WIP accounting practices that lift the efficiency factor:
- Daily time entry, with no exceptions for partners or senior fee earners
- Weekly WIP reviews to identify ageing work and convert it to invoices
- Standard write-down policies, applied consistently across all matters
- Regular WIP visibility through MiNumbers or your practice management dashboard
- Lock-up targets that hold the firm accountable to converting WIP to cash
Five ways to improve the efficiency factor
Improving law firm efficiency does not require more clients or more hours. It requires better use of the resources you already have. These are the five most reliable ways to lift your firm’s efficiency factor:
- Clarify expectations. Make financial targets visible to fee earners. People perform to the targets they understand.
- Plan workflows weekly. Assign matters strategically so the right work is being done by the right people at the right time.
- Tighten WIP policies Adopt a “nothing left off the timesheet” rule.
- Centralise billing. Remove fee earner discretion from billing functions to drive consistent revenue capture.
- Review labour costs. Low efficiency often points to excess labour. Assess structure and allocation.
Frequently asked questions
What is the efficiency factor in a law firm?
The efficiency factor is a single ratio that measures how effectively a law firm converts paid time into billed revenue. It is calculated as professional fees billed divided by total billing capacity (standard hours × target productivity × charge rate). A score above 90% indicates strong utilisation; below 75% signals significant opportunity to unlock profit.
How is law firm efficiency different from billing efficiency?
Law firm efficiency is broader. It looks at how well the firm is using all the time it pays for, billable or otherwise. Billing efficiency is narrower, measuring the percentage of recorded time that ends up being invoiced. Both matter for law firm profitability, but they point to different root causes when they are low.
How does WIP accounting affect law firm profitability?
WIP accounting is the discipline of recognising fee earner time as it is performed. Poor WIP practices, including delayed time entry, slow invoicing, and inconsistent write-downs, all reduce the efficiency factor and drag on profitability. Tight WIP discipline is one of the fastest ways to lift law firm profit margins without adding revenue.
What is a good efficiency factor for a law firm?
Above 90% is a strong result. 75 to 90% suggests moderate spare capacity and room for improvement. Under 75% indicates the firm has substantial untapped profit potential. Over 100% can mean the firm is at full capacity and may need to expand its team to keep growing.
Improving your efficiency factor doesn’t require more clients or more hours. It simply means making better use of the people and resources you already have. If you’re ready to unlock the full value of your team’s time, FWO is here to help. As strategic financial partners to law firms, we guide you to improve profitability through practical, measurable insights.