Business owners, or I should say, successful business owners, know and track their key performance indicators (KPIs). At just a glance, successful business owners can see what’s working, what’s not working, and where to adjust.
As a solo practitioner, you’re a business owner and CEO, right? Of course you are – but over the last 19 years, I’ve found that most lawyers don’t act like either. Why? Because we’ve been raised to be lawyers, not business owners. It’s not your fault.
Picture your car’s dashboard. It displays your car’s most important numbers. With a drop of the eyes, you know whether you need gas, how fast you’re going, how many miles you can go on the current tank of gas, how many miles the car has gone in its lifetime, and the RPMs.
You instantly know whether you need to slow down, stop for gas, accelerate, or have the engine checked. It’s the same for a law firm. You need to know, at a glance, what should be adjusted: you or your team, office, tools, sales, marketing, or services. Without KPIs on a dashboard, you’re driving your law firm blind and will, at some point, crash.
The Number 1 Most Common Challenge Law Firms Like Yours Face
What complaint do solo practitioners make most often? Yes, you guessed it: lack of consistent cashflow. If that’s you, does this mean you should do more marketing? Or, does it mean you need to work on your closings, collect more significant evergreen retainers, or charge higher fees? Is it something else?
You have no idea – and neither do I – until we look at your KPIs. Lack of consistent cashflow is a symptom, not the problem. We need to diagnose what’s really going on – just like the doctor does when reviewing her own dashboard, your blood test results.
The 20 Key Performance Indicators Every Law Firm Owner Needs to Know
To diagnose your law firm’s problems (read, “opportunities for growth”), you need to know specific key performance indicators.
Your monthly dashboard needs to show:
1. Client satisfaction rating (as part of your survey, have your clients rate their experience from 1 to 10)
2. How much debt your firm currently has (line of credit, credit cards, loans)
3. Current run rate (based on the last 3 months’ revenues, the revenue your firm would have annually if that revenue was consistent for a year)
4. Current anticipated annual nut (based on the last 3 month’s costs, the total amount of anticipated annual costs, including team salaries and your salary, for a year)
5. Difference between your run rate and nut (subtract #4 from #3)
6. The amount of revenue you deposited into your operating account during the last full month
7. The balance in your operating account today
8. The balance in your trust account today (unbilled work only – don’t count escrow funds or expenses)
9. Your monthly nut (the cash you need in the next full month to cover your expenses, pay yourself, and pay your team)
10. Amount of accounts receivable (AR) you have outstanding today (over 30 days if you bill monthly; over 15 days if you every two weeks)
11. Age of the AR
12. Number of new cases/matters you opened in the last full month
13. Estimated average value of these new cases
14. Number of cases/matters you closed in the last full month
15. Average value of these cases closed in the last full month
16. Number of appointments for consults in the last full month
17. Number of potential new clients (PNCs) who showed up for those consults
18. Number of PNCs who both showed up and became clients
19. Number of marketing actions have you or your firm took in the last full month
20. List those marketing activities (admittedly, not a number)
Law Firm KPIs: Your Next Step
Don’t freak out. Yes, if you’ve never seen this before, it feels like a lot. That’s okay, you can do this and you’ll get used to your dashboard quickly. It may even become addictive like checking your bank balance or your emails (or Thin Mints). And, no, it doesn’t take a lot of time. Delegate to a team member, Fiverr expert, or bookkeeper (which should NOT be you) to set this up in Excel or a Google spreadsheet. Then, have a team member keep track of and enter the numbers monthly. It doesn’t have to be perfect, just start.
At the beginning of each new month, put on your CEO crown, lower your eyes to your dashboard, and diagnose away. Identify ways to tweak what you and your team are currently doing. It literally will take 10 minutes a month once you get the hang of it.
Here’s Some Help with Identifying Law Firm Opportunities
As the months pass, you’ll see patterns. Patterns that show all those things you’re doing right – as well as patterns that let you know you’re headed for quicksand. Knowing specifically what’s working and what’s not working gives you the power to make good decisions.
What specifically needs to be tweaked to get better results?
- Perhaps you see that 12 potential new clients (PNCs) are coming in each month for a consultation, but only 2 are converting to clients.
No, you don’t need to do more presentations or hire an SEO service to increase cash flow. There’s something wrong with your conversion rate. Do a quick scan and ask yourself: Is your receptionist well-trained and welcoming or does she make PNCs feel as though they’re interrupting her? Is your waiting area welcoming and fresh or does it smell like 1,000 cats? Are you giving legal information away for free and looking at your shoes when you quote fees or are you showing PNCs that you understand, empathize with, and can solve their problems – and to protect ABC or achieve XYZ, they need to hire you by signing the engagement agreement and paying a hefty retainer?
- Or, perhaps your accounts receivables are out of hand. You’re owed $5,000, $50,000, or $500,000 (yes, it happens) in fees.
This symptom means you need to look at billing practices, including retainer amount, client communications, evergreen retainers, how often you bill, how long it takes you to bill, and whether you’re setting appropriate expectations with the confidence to enforce. You also need to consider whether you’re taking PITA clients to whom you should have said “no” from the beginning.
Catching Law Firm KPI Dashboard Fever
You’re going to love your dashboard – after you throw rotten tomatoes at me for making you look at and organize your numbers, I expect lots of fan mail because having your law firm KPIs instantly accessible will give you the power you need to move from where you are to where you want to be like nothing else. Over time, you’ll know what step to take next, see results, and gain confidence. And, that’s how you create your ideal law firm – with numbers.
All opinions, advice, and experiences of guest bloggers/columnists are those of the author and do not necessarily reflect the opinions, practices or experiences of Solo Practice University®.