Here’s a starter set of metrics any small or midsize law firm can adopt to tighten operations, control leakage and keep pricing fair and sustainable. From the author of the new book, “Law Firm KPIs: The Professional’s Handbook for Pricing, Productivity, Profitability.”
Table of contents
Clients don’t ask for “utilization” or “realization rates.” They ask for reliable budgets, faster answers, and confidence that their fees buy real value. The best way a firm can deliver on those expectations is by running its own house with discipline.
Stop Guessing: A Simple KPI Stack for Small and Midsize Law Firms
These five internal KPIs aren’t for marketing; they’re for management. They help partners see where profit is leaking, how pricing actually performs, and where cash flow is stalling. And because they’re simple to calculate in a spreadsheet, you can start tracking them this week and review them weekly.
1. Utilization Rate
What it is: The share of a timekeeper’s available hours worked on billable cases.
Formula: Billable hours ÷ Available hours
Why it matters: Underutilization hides in small increments such as late time entry, fragmented days, context switching. A one-point lift in utilization across a 10-lawyer firm can be worth tens of thousands annually.
Quick start:
- Set a weekly utilization target by role (e.g., 70% associates, 40% partners).
- Enforce same‑day time entry; close time weekly.
- Publish a simple chart that shows target vs. actual for the past 8 weeks.
2. Realization Rates (Billing and Collection)
What it is: Two checkpoints where profit leaks: write‑downs/discounts before invoicing, and write‑offs and slow pay after invoicing.
Formula: Billing Realization Rate = Billed ÷ Worked
Formula: Collected Realization Rate = Collected ÷ Billed
Why it matters: A one-point improvement in either checkpoint is pure profit. On $2,000,000 in annual billings, +1 percentage point = $20,000.
Quick start:
- Add a “variance” column to prebills that shows proposed discounts by case and by client.
- Require partner approval for discounts over a threshold.
- Send invoices within 7 days of month-end; review aged A/R weekly and call, don’t just email, at 30 days.
3. Profit Margin
What it is: The percentage of fees left after direct labor cost and other direct costs.
Formula: Margin % = (Revenue − Expenses) ÷ Revenue
Direct costs include timekeeper labor at the cost rate (not the rack rate) plus vendors and experts.
Why it matters: Profit Margin shows if pricing and cost control are working. Declines often point to rising overhead or unprofitable cases.
Quick start:
- Define a simple cost rate: (Comp + benefits) ÷ annual working hours. If you want a conservative view, multiply by an overhead factor.
- Track budget vs. actual hours by role for each live case.
- At close, record the final margin and the “why” (scope, staffing, rate, write-downs) so you can learn.
4. Pricing Variance
What it is: The gap between your target price and the price you actually achieve (by case and by client).
Formula: Pricing variance = (Actual price − Target price) ÷ Target price
Why it matters: Even small, ad hoc discounts compound across a portfolio. Variance also reveals where AFAs outperform hourly (or vice versa).
Quick start:
- Publish pricing guardrails (e.g., standard rates, max discounts without approval, when to use collars).
- For AFAs, define success criteria before work starts (scope, assumptions, change-order triggers).
- Review variance monthly by client segment.
5. Total Lockup (WIP-to-Cash)
What it is: The average days from doing the work to cash in the bank, combining billing delays (Realization Lockup) and collection delays (Collection Lockup).
Formula: Total Lockup (TLU) = Realization Lockup + Collection Lockup
Why it matters: Long lockup starves growth and masks staffing problems. Reducing lockup by even five to 10 days can fund hiring and tech investment.
Quick start:
- Close time weekly; pre‑bill automatically; invoice on a predictable cadence.
- Offer client-friendly payment options and send reminders before due dates.
- Investigate cases with unusually high WIP age; they often signal scope creep or stalled approvals.
Make It Work in the Real World
Start with a one-page dashboard: the five KPIs above, current value, target, and a short “next action.” Review it weekly with the managing partner or practice lead. Treat the dashboard like a pitstop: quick checks, fast decisions, and getting back on track.
What to Watch
- Don’t “game” a single metric. For example, pushing utilization without monitoring margin can backfire.
- Keep your definitions stable for a quarter so trends are meaningful.
- As you mature, add two accelerators: Case staffing mix (partner/associate/paralegal ratio) and win rate by case type and client tier.
You Don’t Need a Data Team to Improve Profit
You need a short list of KPIs that connect to pricing, productivity, and cash — and the discipline to review them every week.
A New Handbook of Law Firm KPIs
In “Law Firm KPIs,” Mori Kabiri gives small and midsize firms a practical way to price smarter, staff better and lift profits in weeks, not years. The book defines 80+ KPIs across finance, pricing, marketing and AI, and includes an AFA Strategy Toolkit and simple margin models. Readers get downloadable templates and real‑world rollout steps.
Cover image credit: Courtesy of InfiniGlobe.
Image © iStockPhoto.com.
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