Law firm Key Performance Indicators (KPIs) are not new. Businesses have used KPIs for decades to track progress towards their goals and growth objectives. While large firms often have entire analytics teams, small and mid-size firms need to be strategic in selecting the most impactful KPIs that provide visibility into the health and progress of the business. Tracking the correct data can help law firm leaders understand what’s working, what’s not, and where to focus their efforts to meet growth objectives.
It’s Not New: Effective KPI Tracking Provides Visibility
Using data to inform business decisions is not a new concept. “Smart” law firms have tracked profitability, utilization, billing, and other metrics for years. While early legal KPIs focused heavily on billable hours, the modern approach looks at a broader range of numbers to understand the big picture.
KPIs give visibility into what’s happening across critical aspects of the business, helping leaders understand strengths, weaknesses, and opportunities. Understanding and tracking the right KPIs is essential for mid-size law firms looking to scale intelligently.
For law firms, common KPI categories include:
Business Development KPIs
Modern firms track lead generation, referral attribution, conversion rates, and profitability by source to understand what marketing and business development efforts generate the best returns. This allows them to double down on the most effective initiatives.
- Lead Tracking – How many new potential client leads are coming in per month/quarter? What sources are providing the most leads? Where should marketing efforts be focused to generate more leads?
- Referral Attribution – What percentage of new business comes from referrals? Who are the top referral sources providing the most business? This indicates networking strengths to leverage.
- Conversion Rates – What percentage of leads and referrals convert to new clients? How long does it take to convert a new lead on average? This helps you plan for both near and long-term objectives.
- Profitability by Source – What are the most profitable sources of new business? Not every client or matter is profitable. Knowing what is the most profitable will help you focus on attracting the most profitable business. Tactics yielding unprofitable clients should be adjusted or dropped.
Understanding individual attorney performance helps firms deploy talent strategically. By linking hours billed and collections to overhead costs, firms can see true attorney profitability and make changes if needed.
- Utilization – What percentage of time are attorneys billing on client work vs. non-billable administrative tasks? Goals should be set for the highest billable utilization, and non-billable tasks should be identified and, wherever possible, transferred to technology or lower fee earners.
- Revenue and Profitability – How much collected revenue and profit is each attorney generating? This will help you identify who may need more support to meet targets.
Billing & Collections KPIs
Accounts Receivable (AR) and Work in Process (WIP) metrics help firms understand the uncollected and unbilled work pipeline to improve billing efficiency and cash flow management. When either AR or WIP gets too high, collections suffer. Proactive firms stay on top of both of these metrics.
- AR – How much billing has not been collected? How long have client bills remained unpaid and outstanding?
- WIP – What dollar value of unfinished client work does each attorney have? Are they overburdened or need more work assigned?
- Collections – How much of the work performed within a specific time frame has actually been billed? Of the time that was actually billed, how much has been collected? These metrics include write-downs/write-ups that occur before billing and what happens after the bill is sent to the client. The higher the collection realization, the better.
Tracking revenue and profitability by case type allows firms to identify their most lucrative practice areas to guide growth. Unprofitable case types may need to be eliminated. Client retention KPIs like net promoter score and metrics like average client lifespan and retention rate help firms gauge the health of key client relationships and satisfaction levels. Prompt course correction can prevent client loss. Comparing billable amounts to actual billed amounts shows how well firms capture value. Low realization indicates discounting and write-offs that hurt profitability.
- Case Types – What practice areas and case types are most common and profitable?
- Client Management/Satisfaction – What is your client retention rate? How often are clients providing referrals or added business?
- Billing Rate Realization – What is the attorney standard billing rate ratio vs. the actual billed rate?
Drilling into legal KPIs shows law firm leaders where professionals and teams excel or need improvement. Below the surface metrics, savvy firms track:
- The Right Work By the Right Person – Are higher billing attorneys doing work that lower-cost resources could handle? Partners should be doing partner-level work. Idle associates are a missed opportunity.
- Individual attorney billable hours, realization rates, and collected amounts – These indicate whether attorneys generate sufficient revenue to warrant their cost.
- Non-billable time investment by activity, such as business development, administration, and firm meetings – The optimal non-billable mix depends on the role.
- Matter profitability at the client, practice group, and matter type level – Identify loss leaders that need correction.
Data availability has opened law firms’ eyes to what’s possible. Cloud-based legal platforms make capturing, analyzing, and acting on KPI insights in real-time easy. Beyond just tracking billable hours, savvy firms are monitoring the right metrics to shape smarter staffing, pricing, case/client mix, and strategy. With data, small and mid-size firms can “measure what matters,” maximizing their performance.
KPI dashboards with data visualizations provide at-a-glance monitoring and should be reviewed regularly by attorneys and operational management. Don’t let your law firm fly blind without checking the key gauges. Properly tracking and responding to KPIs leads to scalable and sustainable growth. Ignore them and risk crashing into the rocks.