Why do some law firms fail even when they have a lot of clients? Well, one of the main reasons is that they fail to measure, track, and act on key performance indicators (KPIs).

Key Performance Indicators are business metrics that evaluate an organization’s performance and success in order to identify areas for improvement and make necessary changes. Sounds simple enough, doesn’t it? However, I know that some of you are uncertain about which specific KPIs you should measure for your law firm. Just keep in mind, you should measure the KPIs that are specific to your law firm’s long-term goals, but here are some KPIs you can start with.

Marketing KPIs

Marketing KPIs can help you review your marketing strategy on a regular basis, so you can adopt strategies that will work best for your law firm. After all, there is no sense in spending money into marketing that is not working effectively, right? Here are a few marketing KPIs to consider:

•         Number of marketing actions taken
•         Marketing budget ratio (the ratio of the total marketing spent to the total fees billed)
•         Marketing cost per client (the ratio of the total marketing spent to the number of clients billed)
•         Firm website traffic
•         Email marketing performance
•         Website landing page conversions

Law Firms: Client satisfaction KPIs

When your clients are happy with the services your law firm provides, they will refer new business opportunities to you. Thus, asking your clients to provide feedback about their experience with your law firm is crucially important. You will have valuable data that you can use to determine client satisfaction. Here are a few client satisfaction KPIs to consider:

•         Number of client referrals
•         Client satisfaction scores
•         Client retention rates

Law firms: Financial KPIs

Law firms typically measure KPIs that focus on the financial and operational aspects of the firm. They compare their current performance against their previous performance to evaluate if they did better than last year. So, pay special attention to the following financial KPIs.

•         Unbilled days
•         Uncollected days
•         Net income as a percentage of revenue
•         Revenue billed per month
•         Revenue collected per month
•         Amount of firm debt (lines of credit, credit cards, loans, etc.)
•         Average net overhead
•         Revenue per employee
•         Revenue per matter
•         Amount of revenue per square foot of office space
•         Current anticipated annual costs (total amount of anticipated annual costs, including salaries, for a year, based on the last three month’s costs)
•         Difference between your current run rate and current anticipated annual costs

Operational KPIs

•         Billable hours per full-time equivalent timekeeper (FTE)
•         Percentage of partner hours
•         Billings per FTE
•         Average bill rate
•         Average work rate
•         Ratio of billed-to-work rate
•         Number of matters opened
•         Staffing ratio
•         Number of billable hours per legal assistant FTE
•         Cost recovery revenue per matter

Wrapping Things Up…

KPIs are crucially important for law firms. By planning, selecting, measuring, and analyzing law firm KPIs, you’ll be able to make more effective decisions on behalf of your law firm, clients, and staff. However, not all KPIs are useful for your firm. So, when choosing KPIs, be sure that the KPIs reflect your law firm’s strategy and goals.