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Three KPI’s Every Small Law Firm Should Know

By Smokeball

Three KPI’s every small law firm should know.

Running a small law firm is not easy. Not only do you zealously represent your clients, but you must also run a business. What are you looking at to make sure your business is performing profitably and as efficiently as possible? Do you have insights into your law firm to help you grow?

Here are three key performance indicators (KPI’s) (law firm KPI) that you should be following.

1. Referral Sources of New Clients

One of the greatest challenges for small law firms is getting new clients. Part of getting new clients is spending marketing dollars in the right places. If you spend money on print advertisement, Facebook ads or on websites, how do you track the effectiveness of your marketing?

One method is to collect that info from every client and then crunch the numbers. If a client comes in from a referral, you want to know from whom. If the client comes in from an ad, you want to know which ad and why. This will help you apply future marketing dollars to the right place.  You want to spend your marketing dollars wisely, and knowing where your new clients are coming from will allow you to do that.

2. Law Firm KPI: Profitability of Each Matter

Whether you bill hourly, fixed fee, or on a contingency basis, you need to know the profitability of each of your matters. Profitability is revenue minus the costs. Seems simple enough — right? Revenue is simple to calculate as it is the amount of money that your client has paid you. Costs are a bit more difficult to calculate. Costs are not only the expense involved with the matter (filing fees, witness fees), but also include the cost of salary, benefits, and other overhead.

To get the most accurate cost calculation, you and your staff should be tracking all your time and activities contemporaneously to determine the cost. To calculate the hourly cost of an employee, you can divide the employee’s salary by the number of hours worked in a year. For example, if your paralegal is paid $50,000 per year including benefits and overheard, divide that number by 2,080 (40-hour work week for 52 weeks): The hourly cost of the paralegal is $24.04. You can then compare this hourly figure to the amount collected for the paralegal’s work to determine the profitability. This may seem tedious, but that’s the only way to get an accurate calculation of your profitability.

3. Realization Rate

When you bill hourly, you need to know the rate at which you are paid for your time. It doesn’t matter how many hours you charge your client if they don’t pay you. To calculate your realization rate, divide the amount you billed by the amount collected. For example, if you billed the client 20 hours and they paid you for 15, the realization rate is 75 percent. Any increase in realization will automatically mean greater profits for you.

Smokeball Gives You Firm Insights

Do you have the time to do the data gathering and analysis to obtain the business intelligence you need? The three KPI’s described above are figures you should focus on every day, month, quarter, and year.

With Smokeball, you can access these KPI’s with a click of a mouse by simply using our legal practice management software. Smokeball automatically tracks your activities contemporaneously and associates it to the case or matter. It’s even ready for you to invoice right away. Smokeball will calculate your staff costs and give you the real-time profitability of each matter no matter if you bill hourly, fixed or on a contingency basis. Want to know where your new clients are coming from? Smokeball will tell you exactly what the referral source is and percentages over the last 30 days, so you can quickly and intelligently adjust your marketing dollars.

You went to law school to do law and not business. Let Smokeball take care of your firm, so you can pursue your passion and practice law.

Click here to see a demo of Smokeball.

SPONSORED CONTENT. Product Spotlight showcases content provided by Attorney at Work sponsors and advertisers. This does not constitute endorsement by Attorney at Work. See Terms and Conditions for more information. 

Categories: Case Management, Legal Software, Legal Technology, Product Spotlight
Originally published October 31, 2017
Last updated July 19, 2021
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