Billable hours is one of the most important law firm KPIs for any growing firm to track. Your law firm’s billable hours will help you understand how much of the time being spent is directly resulting in revenue for your firm. If you find that billable hours are low, it could be an indication that you need to delegate non-billable tasks in order to focus more on profit-generating activities within your firm.
How do billable hours for law firms impact my bottom line?
Before we get into the best ways to track billable hours, let’s first talk about why this metric is important. Billable hours are the hours billed to clients for activities that are directly related to their cases/clients. Any other hours, like those dedicated to professional development, business administration, marketing, or any other activities are not included in billable hours. Because this is such a narrow scope of the work that your law firm does, you must ensure that it is tracked appropriately to understand your attorneys’ productivity in your firm. How many billable hours your law firm has each month really matters because it is the main driver behind how much revenue you’ll make.
Billable vs. Non-Billable Hours for Staff Attorneys
The main reason that billable vs. non-billable is so important for small firms is because you need to strike the right balance in order to maximize your firm’s profitability and productivity. If you have staff attorneys who are all being paid a salary for their work, but only 30% of their time is spent on billable tasks, you’re probably overpaying your attorneys to do work that is below their pay grade. The key to profitability is to have your attorneys focus only on the tasks that they are uniquely qualified to do and to delegate all the rest.
The latest law firm billable hours survey from Reuters shows that billable hours are down to the lowest level since 2007.
Experts say that these figures show a drop in demand for corporate lawyers, which could mean a decrease in profitability throughout the sector. This analysis is important because it shows yet another reason that tracking this metric is important: It can tell you if your law firm needs to get moving on marketing. If your attorneys are being as productive as possible, so much that you really shouldn’t delegate your non-billable work but your billable hours is still deflated, it could mean that your influx of clients to whom you could bill more hours isn’t as strong as it should be.
Tips for Tracking Billable Hours
Now that you understand the importance of this metric. Let’s talk about how you can actually track it. Here are some tips to make tracking more efficient and streamlined:
- Use tools that integrate with your practice management system whenever you can. Most tools have features that can actually link your billable hours tracking with your invoicing system. Take full advantage of this software as it will help you easily see how your business is performing in terms of this key metric.
- Use real time tracking and require your attorneys to enter billable hours as they go. This will avoid any inconsistencies and eliminate the risk of overcharging your clients. Some practice management apps even give you the ability to record this time in-app for extra precise results.
- Set your team up for success by clearly defining how billable hours should be tracked and translating that to them in multiple mediums. For example, attorneys should receive a verbal training on how to appropriately track hours, be given a guide that they can reference back to if needed, and have access to a screen video showing them how to utilize any technology that your firm requires the use of in this process.
Overall, tracking billable hours is about more than correctly billing your clients, though that is plenty reason enough to get it right each time! Effective and efficient time tracking for your billable hours is key in order to maximize profitability, eliminate inefficiencies, and keep your law firm growing strong.
