Law firm key performance indicators: a primer.

• Author: Mabey, Mike

Law firms of all sizes measure various behaviors and indicators of firm health and performance. These indicators are important sources of information for the management of the firm and its staff. The challenge is to identify the subset of these metrics that are critical to the success and life of the law firm and then focus on these metrics, which are referred to as key performance indicators, or KPIs.

When choosing KPIs, your firm should consider that the KPIs must:

* reflect the firm's strategy and goals;

* be seen as key to the firm's success; and

* be quantifiable.

All KPIs should be firm specific but also taken in context of an industry-level view.

No firm uses all KPIs.

Every law firm should identify the KPIs that are important to the firm and its definition of success and put in place a system for tracking and using these metrics to guide firm strategy.

No one KPI tells the full story; rather, KPIs must be viewed collectively to ensure the firm's decisions are made on an informed basis. For example, if your firm has a strategic focus on specific client relationships and supports that focus with client teams, then perhaps the following KPIs might be important in measuring the breadth of the relationship:

* The number of matters per client as an indicator of growth in the client relationship;

* The number of practice areas that serve these clients as an indicator of cross-selling success; and

* The number of lawyers with time on matters connected to this client, as it measures the breadth and depth of the relationships between your firm and the client.

Function-Specific KPIs

KPIs typically have focused on the financial and operational aspects of law firms.

Financial KPIs:

* Unbilled days

* Uncollected days

* Net income as a percentage of revenue

* Average net overhead

* Revenue per square foot

* Revenue per employee

* Revenue per matter

* Percentage at point of billing

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

Marketing and Business Development

Firms are still in the early stages of exploring marketing and business development KPIs to understand what will work best for them. A firm's strategic focus will impact its selection of KPIs: Transaction-focused...