When it comes to running a profitable law firm, financial metrics aren’t the only ones that matter. In fact, metrics that are related to productivity are often inextricably linked to those that measure profitability and other financial indicators. That’s why it’s so important to consider those metrics that have to do with case management procedures and to consider how they are impacting your bottom line. Today, we’re going to share some ways to evaluate KPIs that are directly related to your team’s productivity and performance and to explain how those can be evaluated alongside financial metrics in order to improve decision making and optimize business sustainability and performance.
What are law firm case management KPIs?
We define law firm case management KPIs as those that are directly related to your case management processes. That is, any type of process that needs to take place in order to keep your firm running smoothly. Systems like billing procedures, work in progress tracking, and other productivity related systems are key in evaluating case management KPIs. A few that we believe are important to track are:
- Utilization rate: the number of billable hours worked divided by the number of hours in the workday.
- Ratio of billed hours compared to non-billable hours worked: The balance between how much time your team is spending on billable vs. non-billable work
- Number of uncollected and unbilled days: Days that were either billed but never collected on or days that your team worked but did not bill for.
- Realization rate: The number of billable hours invoiced divided by the number of billable hours worked.
- Collection rate: The number of hours collected divided by the number of hours invoiced.
All of these KPIs not only require financial tracking but also require you to carefully track time and billable hours in order to evaluate performance. Though these KPIs have financial meaning, they are not able to be tracked simply in your QuickBooks Online dashboard. Instead, these KPIs need to be evaluated by using data from your case management system. Thus, why we consider these KPIs to be case management KPIs.
How do case management systems for law firms impact the bottom line?
Though these metrics are productivity focused, they have a profound impact on the bottom line. Take collection rate, for example. Law firms only collect about 89% – on average – of what they bill. If your collection rate is hovering at around 84%, it could be a sign that you need to make changes to your billing system in order to ensure that your firm is collecting on what has been billed. This metric reveals that there is a problem somewhere in the billing system itself, not with your ability to make sales or get clients.
Similarly, the ratio of billed hours vs. non-billable hours can reveal if your attorneys are spending too much time on tasks that do not require legal expertise to complete. For instance, if you realize that your attorneys are spending large amounts of time on tasks that could be done by a contractor or employee whose hourly rate is much cheaper than your attorneys, it’s a good indication that you’re wasting money by paying attorneys to do work that is below their pay grade. In this case, outsourcing this work to lower-paid professionals will allow your attorneys to take on more billable work, thus boosting your profitability overall.
Measuring law firm profitability alongside case management metrics
Since these metrics can seem a bit disconnected from profitability on the surface, the best way to understand them completely is to pull data from your case management software and data from your accounting software together using advanced reporting tools. This will help you to fully evaluate your law firm’s performance and to make key decisions about your next steps.
Best law firm case management software for tracking KPIs
Most law firm case management software has the ability to support your firm with tracking law firm case management KPIs, but which software you choose should be based on your overall needs and goals for your software. Here are a few we recommend and links to articles that highlight their features:
- LeanLaw
- MyCase
- Clio
- CosmoLex
Why your law firm software should integrate with your accounting software
No matter what software you choose, you should always use software that integrates with QuickBooks Online. If your current software does not sync up with the QuickBooks system, we highly recommend switching to a system that will. By linking these two software solutions, you will unlock so much valuable data, linking your case management KPIs and financial metrics together for maximum efficiency.
