Do you have a way of knowing if your firm or practice is on the right track? If something was off, would you know what tweaks you could make to fix things?
One very important way to analyze your practice is through the tracking of Key Performance Indicators (KPIs). KPIs are quantifiable measures that can be used to gauge whether you are moving toward (or away from) your strategic goals.
You can create and track any sort of metric in your law firm or law practice. Both law firms and individual attorneys within firms should create and track their own KPIs. Some basic KPIs that everyone should know include monthly revenue, expense, profit.
What metrics you track depend on your practice. Hourly firms, for example, should track billable hours and various KPIs related to hours (e.g., realization rate). But most plaintiff contingency lawyers don’t care about and don’t track their work in terms of hours, so KPIs related to hours are of no benefit.
Focus on what really matters. The KPIs a firm or lawyer track and seek to improve should align with overall, strategic goals. What gets measured gets done. And wrong measurements will drive wrong behavior.
After determining what KPIs are important, you need to determine your baseline benchmarks. Looking back over the last 12 months is a good start. When you begin to see what inputs drive outputs, you can adjust accordingly and make informed decisions on where to invest your resources (both time and money).
Here’s an example: You’ve determined that you bring in 10 new clients per month. You market your practice in several ways. You use Google adwords, you pay a vendor for SEO services, you pay for a sponsorship, you engage in a nurture campaign with past clients, etc. If set up properly, you should be able to track the number of leads you get from each marketing source. You should also know how many of those leads turn into actual clients.
With all of this data, you will be able to determine which marketing activities produce the most quality leads and the cost to acquire one new client from each source. If you want to increase the number of clients you are handling or reduce your spend on less effective methods, you will then be able to make an informed decision on where to allocate your funding. Without KPIs, your decisions will be based on guesswork.
Below are metrics that all firms and lawyers should probably track on a monthly and yearly basis:
- Number of leads
- cost per lead
- Conversion rate of those leads
- Acquisition cost per client
- average fee per matter
- lifetime value of client
- Return on marketing investment
- percentage of revenue spent on marketing/business development
- client satisfaction (based on a survey of some sort)
There are dozens of others that can be measured and tracked. But, again, focus on what really matters. At some point, the marginal utility of tracking another KPI is negligible.