What you can Measure you can Manage

Numbers don’t lie. But they can tell you the wrong story if you don’t read them correctly.

A law firm has 5 key financial numbers that it needs to measure at least weekly:

  1. Productivity %: the percentage of total hours charged by fee earners to WIP of the hours they are at work
  2. Write-on/off %: the percentage of WIP billed either over or under the amount charged to WIP
  3. Average rate: the average amount of revenue earned per hour paid
  4. WIP days: the number of days of revenue that has been charged to WIP but unbilled
  5. Debtors days: the number of days of revenue that have been billed but hasn’t been paid by clients

There are many more financial numbers that should be measured to provide a complete financial story for the performance of a legal firm.  Here I’m only focussing on the five key measures that drive improvement in revenue and cash flow on a daily basis.  To improve the financial performance of a law firm, you must first get these right, then the other key numbers will take care of themselves.

These numbers are called key performance indicators (KPI’s).  KPI’s are more than just information.  These KPI’s measure the key revenue and cash flow activities of a law firm.   Albert Einstein defined insanity as doing the same thing over and over and expecting a different result.  So it makes sense that unless you do something different with the activities that drive these KPI’s, you won’t get a different result.

Some key activities that will drive improvement in these KPI’s are:

Productivity %

  • Set clear daily and weekly hours and $ based targets for each team member
  • Have each team member report on their $’s added to WIP (self monitoring)
  • Focus on marketing and sales activities to drive work for team members
  • Closely monitor work flow to ensure each team member is working to their capacity
  • Focus on file velocity (i.e. completion of matters)

Write-on/off %

  • Engage all clients by providing an estimate of the work you will do for them and have clients sign off on this before you start work
  • Plain English covering letter stating terms of engagement attached to costs agreement
  • Re-engage clients during the matter when WIP is likely to materially exceed the estimate
  • Bill the amount in WIP
  • Ensure the right person is doing the right work at the right rate

Average rate

  • Value the solution you provide to your client and bill them accordingly
  • Increase your charge rates
  • Set a minimum average rate per hour for the entire firm and bill to achieve this rate
  • Provide high end high value solutions to clients with your products/service offerings
  • Implement a marketing strategy that creates awareness around the value to the client of the products/service offering to them
  • Always remind the client of the value of the solution you provide to them
  • Constantly cross-sell & up-sell
  • Define your core product/service offerings and set minimum prices for them firm-wide

WIP days

  • Engage all clients by ALWAYS providing an estimate of the work you will do for them and have clients sign off on this before you start work
  • Plain English covering letter stating terms of engagement attached to costs agreement which includes the timing of your billing
  • Bill clients early and often
  • Given that billing is aligned to the agreed timing and estimate per the engagement process, billing is to become an administration function, not required to be done by the fee earners until the final fee is prepared

Debtors days

  • Take debtor follow up away from fee earners
  • Debtors collection to be the responsibility of a debtors champion (non-fee earner)
  • Define the debtor collection process
  • Deposit cash directly to trust account and review WIP every week (as a minimum) to withdraw cash to the general account

Measure the outcomes of the right activities to get a different result.

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