Key Ways to Measure The Success of Your Law Business
The day-to-day practice of law is busy and can feel all-consuming. Simply managing your caseload is enough to sap your energy and make you feel that it’s impossible to have any time for managing the business of running your law practice. But, here’s the thing. If you don’t make time to run a successful law business, your law practice will soon be out of business.
So, how do you find time build your law business when the practice of law requires so much of your focused energy? Simple … maximize your time.
Get started by becoming crystal clear about the 6 metrics you must track in your law business and how to extract valuable information from these metrics that you can use to build and grow.
Here are the 9 metrics you must track, monitor and adjust upwards if you want your law business to grow:
1. New Matters
On average, how many new matters come into your office each month? How does the past month’s performance compare to your average? Looking at monthly averages for client intake is important because it can help you assess your growth and understand your firm’s business cycles. For example, December may be very light month for some firms due to the holiday season, and a very heavy month for others because it represents the end of the fiscal year. Understanding your business cycle and quantifying your expectations for the future revenue is essential to building a profitable law practice.
2. Billable Hours
How many billable hours do you average per month? If the majority of your work product is not billed hourly, then what is your average fee per matter per month?
3. Average Hourly Rate on Billed Matters
What is the average hourly rate that clients pay for your services? If you regularly accept both hourly billing and fee arrangements, look at the total amount billed for the month, and divide it by the number of hours actually worked. This will give you your average hourly rate.
4. Cash Collected Each Month
For this metric, forget about how much you’ve billed. Take a look at your actual receivables. How much are you actually taking in each month? How does this month compare to your average?
5. Amount Outstanding Each Month
What is the difference between the amount you bill, and the amount you receive each month? In other words, how much have your clients not paid you?
6. Collection Rate Each Month
Once an account becomes past due, what is the likelihood that you will ever be paid? Some clients are slow to pay, other won’t pay without the threat of legal action, and still others will simply never pay. Calculate the outstanding total from accounts that became past due in the last month and compare it to the sum of past due accounts that have been paid in the last month. What percentage of past due receivables are you collecting?
Pay close attention to these metrics will help you make critical business decisions in your law practice and build a profitable and sustainable law business. If you want to continue practicing law, you must begin to think of your firm as a law business.
But, here’s the thing: when you have the right data in hand, your law business will be positioned for sustainable success and will support you and your family in the years to come.