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Time Tracking for Lawyers: Why Every Firm Needs to Track Time to Stay Profitable

By John Scott

The “how” of lawyer time tracking will fall in place once you understand the “why.”

lawyer time tracking

“Tracking time is my favorite thing” said no lawyer ever.

When I retire, there are many things I will miss about my profession, and time tracking is not one of them. When I was getting started as an accountant, we had timesheets to submit every day from 9 to 5, Monday through Friday—plus busy season weekends—in 15-minute increments. Today, apps make it easier, but it amounts to the same thing: I let my partners know where I am, with whom, and why. 

Accountants and lawyers share this requirement — and not just hourly billers. Whether or not the client sees billable hours on an invoice, all service-based businesses need to track the time of employees who do client-facing work. Call us bean counters if you like. I don’t enjoy chopping up my day, but I do it, and I stand by it for my firm and my clients. You don’t need to count every bean perfectly, but every member of your firm who bills on client matters needs to do it contemporaneously and consistently. 

Your Law Firm’s Ability to Create Dynamic Forecasts Depends on Time Tracking.

Human capital makes law firms work. Like all service professions, you are selling time and knowledge. With human capital, everything you do is based on time. Track it or don’t, but when you do, you gain the ability to understand the value of each partner’s time and each employee’s time — their potential earnings versus their fully loaded cost. Determine these two numbers and in between you’ll have your potential profit. 

Clients often tell me, “Hey, I want to grow 20% next year and have net income growth.” Aspirations are great, but you have to stress test by asking: Do we have the proper number of attorneys or do we need to hire? But you also have to ask: How much additional overhead are we going to incur to support the revenue growth? And how will that impact our profitability goal? 

So, instead of asking, “Do I want to ask everyone in my firm to track time?” ask, “Do I want to know if 20% growth is possible?” I’m guessing that the second question will get you to “yes.”

The “how” of lawyer time tracking is easy.

Pick a tool — TimeSolv, MyCase, Filevine, PracticePanther, Cosmolex, Rocket Matter, Juris, Sage Timeslips, Clio. They all have their bells and whistles. The main feature you need is a method of allocating hours to client matters and nonbillable matters.

The “how” will fall into place once you understand the “why.” I’ll say it again: Tracking time is the key to developing a dynamic forecast.

Lawyer Time Tracking and Billing Methods

I’m guessing your attitude toward time tracking depends on your billing practices.

  • If you bill hourly, you have to track billable hours in order to get paid. That’s good enough motivation. 
  • In the case of fixed- and contingent-fee firms where the client never sees an hourly invoice, time tracking is still incredibly valuable. Fixed-fee attorneys need to know how many hours are being spent in order to job cost and set appropriate fees.
  • Contingent-fee firms have an even more complicated calculation: Are you selecting the right cases to ensure the risk is worth the reward? The only way to know this is to quantify the hours spent.

Regardless of how you bill, all law firms should track all hours, billable and nonbillable.

Utilization Rate and Average Bill Rate

Time tracking is the only way to calculate the production metrics that allow you to understand profit potential: utilization rate (the percentage of hours they work compared to total possible working hours) and average bill rate (the amount they bring in per hour — not to be confused with standard hourly rate, which is necessarily higher). 

Time Tracking and Growth: Pulling Levers

These metrics — which we refer to as levers — can be tracked across the firm to see if there are kinds of cases that are more profitable (or matters for which fees or rates should be increased). That gives you a starting point for your growth plan: We refer to this as pulling levers. If you hope to grow 20%, you can look at the utilization rate and average bill rate and see how much they would have to increase to get there. Are the increases feasible? Or pie-in-the-sky? 

There are so many other insights you can get:

  • Is your average bill rate near your standard rate, and if not, why?
  • Is your utilization as high as expected — for individual team members as well as across the board?

If certain people are struggling, you can see if you need to get them training or administrative support. But if your firm utilization is consistently off the mark, you could be overstaffed (if the rate is lower than expected) or understaffed (if it’s higher).

In addition to personnel and rate changes, tracking time allows you to see the big picture: If you always achieve a lower average rate on certain jobs, you might consider changing the type of work you do or even the type of billing. 

Further insight comes from tracking for flat-fee matters. You may find your average bill rate is consistently low for certain matters, and you need to raise your fee or bring in more junior employees to get the job done. 

Seeing profit potential is like having a personal GPS: Once you know what your team can do versus what they are doing, you know what’s left to do to close the gap.

Why are some months different? Once you control for factors like increased vacation days, you can see if other issues are causing dips or spikes in the amount of client fees billed.

Lawyer Time Tracking Is Exciting (Really)

When you track time, it becomes possible to model an entire year and determine how much cash you should be generating. If the projected numbers don’t match, you can come up with a game plan; if they do, it’s time to think about how to boost revenue. That might mean increasing margins — usually by raising rates—or increasing the average billing rate through leverage and other strategies.

This is when things get exciting. Something to keep in mind when you’re staring at your time-tracking software and wishing you didn’t have to account for your day. 

Related Reading: “What Should Be On Your Law Firm’s Dashboard?” by Brooke Lively

Image © iStockPhoto.com.

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John Scott

John C. Scott is a Partner in the Tax Services Group at Anders CPA + Advisors. With more than 30 years of experience, he leads the firm’s legal industry efforts as a Virtual CFO. He offers dedicated resources, financial insight and critical thinking to address complex issues facing law firms, helping them be more efficient, competitive and profitable.  John is an Accredited Estate Planner, Chartered Global Management Accountant and a CPA. Follow him on LinkedIn.

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