We are going to focus the next few episodes on business growth strategies for law firm owners. Since this is one of our industry-specializations, we wanted to put together a series of episodes that hone in on some of the growth strategies you can implement in your own firm to see intentional growth. More specifically, today we will be discussing staff productivity and efficiency KPIs (Key Performance Indicators). This episode will focus on setting goals, tracking and measuring performance, and using KPIs to analyze results and make adjustments toward success.
What we cover in this episode:
- 00:26 – Intro
- 01:40 – Katina’s legal background
- 03:24 – Why are staff productivity and efficiency KPIs important?
- 08:28 – Using the data to lead your team
- 12:54 – Establishing systems
- 13:39 – Billable vs. non-billable time
- 17:41 – Realization rates
- 21:35 – Billings per FTE (full-time equivalent)
- 24:28 – Cost per employee
- 26:01 – Training and quality control
Katina’s legal background
Gaining much of her accounting and advisory experience in service-based businesses, Katina Peters, CPA, CGMA, has worked with the legal community for over 20 years. She has worked closely with individual owners, as well as multiple partner firms, that provide corporate and personal law. In her experience, Katina has found that accounting and law firms tend to run in a very similar fashion. She enjoys working with like-minded professionals with similar ethics and morals. When working with law firms, Katina strives to establish good accounting structure and systems within a firm, and analyzes KPIs to recommend what they can do to improve and grow their firm.
Why are staff productivity and efficiency KPIs (Key Performance Indicators) important?
One of the main points in analyzing your firm is looking at your efficiencies and performance. By examining how people are performing, you will have a better foothold on what is going on in your business. It also provides the opportunity to find what may be holding your team back from performing well. These points are often overlooked in the busyness of the office. One useful tool in the analysis, and subsequent adjustments to streamline operations, is implementing an industry-specific time tracking software.
You have to be able to measure the performance of your firm with a few key metrics. Establishing systems to determine if processes are clunky or track successes and failures are critical to growth. If you’re not looking at numbers or tracking metrics on a regular basis, you may not even recognize there is a problem or opportunity for improvement. So that regular analysis and tracking these numbers month to month and year to year is a very important aspect of being intentional about growth and reaching goals.
Accountability within your firm
Firm leaders want accountability and transparency within their team. You need a way to track this and determine who is responsible for tasks and achievements. Tracking metrics like staff productivity and efficiency KPIs in your law firm can allow you to do that. Now, this isn’t necessarily to be used in a negative way. These numbers allow you to determine who is performing well! When we uncover what is being done well, we can share that with the team to help others improve.
Accountability is a way to recognize strengths and weaknesses within the organization and also offers a level of predictability. It can help us predict how many hours to assign to certain jobs, manage job expectations and how it all translates into the firm’s strategic plan and revenue goals.
Once you establish systems to monitor these things, it should be easy to pull reports that give you an overview relatively quickly. When you’re setting up procedures to track your numbers, you don’t want to be spending hours every week or month just pulling the data together. These are management reports you need quick and easy access to in order to continually get a handle on how you’re doing and make adjustments as needed.
Using the data to lead your team
Working with a firm to implement these KPIs brings data to the surface, helping owners see the overall picture from a realistic perspective. In most cases the data will bring to light how people are spending their time and how we can make structural changes, system-wise and people-wise, toward efficiency and profitability. For example, maybe a firm needs more administrative support so a partner can focus more time on billable client work instead of non-billable administrative tasks.
Additionally, time tracking can aid in assigning client work. One employee may be very efficient at a task or working with certain clients, while another employee may struggle. We can highlight the positive things that people are doing, trying to focus on replicating those results for other team members who are struggling. Sharing efficient processes with the team and putting people in the right seat within the firm allows everyone to move forward toward success.
A word of caution, we don’t want to use these KPIs just to reprimand people. We want people to be accountable, but we also want to set realistic expectations. If we have no data to show what that realistic expectation should be, then we might be unrealistic in what we are asking people to do. If used well, the data helps us to uplift our team, making the firm a better environment for everyone.
Policies and procedures are crucial to efficient operations within your law firm. While the ideas behind tracking these numbers are great, you need to make sure you’re using a system so that once it’s designed and set up, the process is hands off for you as the owner.
Industry-specific software will remove the manual responsibility of tracking this data within your law firm as well. You will also want to establish a reporting frequency (i.e. weekly, monthly). Once a system is established, upkeep is relatively simple. It can be as easy as assigning a staff member to input the numbers for each predetermined KPI once a month. Then, you can set aside a block of time for yourself to analyze the results, identify patterns (good and bad), and find opportunities for adjustment.
Billable vs. non-billable time
Most law firms bill by the hour. One of the things we’ve encountered is while firms are good at tracking the billable time, they’re not so great at tracking their non-billable time. Some firm owners ask, “Well who cares?” If we are tracking that non-billable time, it helps us to see when a partner, manager, or a staff attorney is putting in too much non-billable time. In that case, we need to consider the possibility that more administrative support is needed to allow attorneys to focus on more profitable client work. As a firm, you can determine if this comes in the form of hiring support staff, or researching ways to automate processes. Again, putting people in the right seat within the firm brings the firm more in balance and moving toward growth goals.
Realization rates are the difference between the actual amount of time you’ve put into the job at the established hourly rate versus what you actually end up billing the client. For example, out of the overall billable time, you may only end up billing for 85% of that time. Realization rates will vary between attorneys, and from client to client. Knowing your realization rates with respect to employees may help fine-tune training deficiencies or discover if someone has a really efficient way of doing something. Maybe you have certain clients whose jobs don’t run as smoothly and you need to figure out how to work better with that client or educate them to make things run smoother on their end. Knowing your realization rates will aid in predictability when it comes to revenue and expenses. Having this information allows you to go into a client relationship knowing that metric and building in that extra 15% when quoting the job, so that you are not losing that on the backend.
Billings per FTE
Billings per FTE simply means billings per “full-time equivalent” person. When considering whether to hire a full-time person we want to ask, what kind of billings could we expect and what kind of costs will come along with hiring a full-time employee. You then know what to expect as the firm grows and you add more people. This is an important metric of the business and can also be used to measure current employee performance. Billings per FTE will vary depending on experience. A newer attorney will generally take longer to do things than a more experienced attorney. That variance will contribute to the hourly rates billed for each level of attorney within the firm.
Cost per employee
Another good metric for the business to know is their costs per employee. Obviously, this will include payroll, but you also need to consider health insurance, taxes, retirement plans, and other items included in the benefit package offered. Another thing to consider is software cost. A lot of software now is user-based in their subscription fees. Going into the hiring process, you want to know what the cost will be to take on another employee. Adding an attorney to your firm will likely be a revenue generator. An administrative position, however, may generate a little bit of revenue, but overall will create more cost than revenue. But again, administrative positions are a leverage point, allowing the attorneys’ time to make more money for the firm. So, when planning your administrative staff and infrastructure, you need to look at the cost added to your firm and whether it is sustainable with the rest of the structure you have in place.
Training and quality control
We like to roll training and quality control together because a good quality control plan incorporates a training component. Looking at your KPIs can point out where more training is needed. You may discover that some training isn’t happening, or just needs some reinforcement along the way. You want to make sure you have a good quality control system in place. The accountability for being billable and profitable are important, but quality is another important factor that cannot be ignored.
Why are we doing all of this? The reason for collecting the data is to set realistic goals for the business, and for each individual within the business. It really helps to have this historical information to set goals and to establish that predictability. Though you can continue to tweak processes and improve, it still really helps to have a good base point to establish the goals for the strategic plan, for your budget, and for what you are trying to achieve growth-wise. You want to build it up with something tangible underneath, that’s measurable, and you can track it on a regular basis.
Having staff productivity and efficiency KPIs allows you to measure and track performance, keep accountability within your firm, improve predictability and ease management with useful reports. You can use this data to lead your team and improve performance and help those on your team who may be struggling.
Establishing systems can eliminate the need for manual data entry and is absolutely essential to execute the type of regular analysis that is required to effectively grow your law firm. Industry-specific software can help leverage your time and make pulling this information on a weekly or monthly basis much easier.
Tracking billable and non-billable time and realization rates are also crucial to understanding fully how your team and firm are operating. Billable time is usually a priority for law firm owners for obvious reasons, but non billable time can shine a light on the need for administrative help so your attorneys can make the most of their time as well. Billings per FTE, or full-time employee, and cost per employee are other metrics we discuss in further detail that are helpful in understanding the impact of growth in your firm.
Lastly, we tackle training and quality control. All of these metrics are collected and analyzed in an effort to improve your practice overall. With proper training and quality control, you can improve the management of your team, reduce stress and anxiety, and see growth and increased profitability in your law firm.
Though some of these tasks may seem menial, or daunting, they are necessary to transform and grow just as any other business. Establishing these measurable goals and tracking them as we progress is how we set goals to improve the business and grow the firm. Each of these things build up over time. It’s not going to happen overnight, but you have to start somewhere.