Many business forums, podcasts, and books talk about team performance and its impact on your business’ bottom line. One thing that is less discussed is CLIENT performance. When it comes to law firm clients, one clear distinction is vital to get a handle on the profitability of your law firm and grasp which are the best clients to help further your business. 

One of the ways to analyze client performance is by getting a handle on your realization rates. Realization rate means more than billable hours. Understanding how to track, analyze and get the most out of your realization rate is vital and plays into the overall picture of client performance.

Realization Rates Defined

As a law firm owner, you are likely very familiar with this term, but it is always best to clearly define our terms before drilling down. Realization rate measures the difference between what you record as time and what percentage of that time is paid by the client. If you work 16 billable hours for a client, but four of those hours get written off or challenged, you have a 75-percent realization rate because the client is actually paying for only 12 hours.

Effectively Tracking Realization Rate

Before we talk about changing your realization rate, we must first ensure it is accurately recorded and analyzed. This is where your software choices come into play. What are you using to track the accounting for your firm? Is it QuickBooks or another generic accounting system? Those can be great as a backbone, but in order to effectively track crucial KPIs in your firm, you will need an industry-specific software built to complement and integrate with your accounting program.

Sage Timeslips, PCLaw, LeanLaw, and Clio are such software solutions that could be considered.

Katina Peters, our resident legal expert, recently wrote a blog featured on UpTime Legal Systems that dives a little further into important KPIs and software considerations.

Raising Your Realization Rate

If you’ve already been tracking these numbers, you may be wondering, “How do I raise our realization rate?” Begin by investing in the client. It’s crucial to come from a mindset of serving your clients and providing what’s in their best interest, while also communicating the value they are receiving, so they truly understand the benefit. Any variance in their perception of value can lead to the client refusing to pay for time rendered or asking for a reduction in fees. The more you know about your client, the less likely you are to miss the mark on billable hours. Plus, clients appreciate a personal touch and want to feel that you are advocating for them. If they understand that you have their best interest at heart, they will be less likely to challenge your work.  

It is also important to make sure all billing practices are consistent in your firm. Ensure all attorneys are keeping to the established timeline and noting all conversations with the client regarding bill structure. Before taking on a client or project, set the expectations for number of hours that should be spent and clearly communicate billing expectations to the client up front.

When to fire a client?

It’s important to empower your clients, giving them a breakdown of the value you are providing. It is normal for them to want to know what they are paying for, and the responsibility to communicate that value falls on your firm. The cost of your services goes beyond hours alone and are also a reflection of your firm’s expertise and the complexity of the case among other factors. If a client is continually asking to write time off or challenging the value of billable hours, it may be time to let them go.  

Finding the right client to help reach your realization goals starts with attitude and performance. Connecting with a client is paramount, so go into every meeting with an open mind and be a good listener. Pay attention to details and determine if a client is sincere in their expectations. It might take more than an initial meeting, but clients’ questions will tip their hand. Are they looking to write time off immediately? Are they asking for shortcuts or loopholes? Do they truly see the value in the work you are doing for them and the expertise you have to offer? Any uneasiness should be noted and could ultimately lead to declining to represent the client.

Using Concrete Numbers to Drive Growth

Going beyond how you feel when you work with that client, which can be subjective, realization rates are more concrete and can give a good snapshot of the profitability of each case. These are your billable hours and your time is valuable.

Another aspect to consider is that, statistically, smaller more difficult clients cost much more administratively while simultaneously distracting your firm from performing well for your good clients. Taking the time to analyze the number of clients in each stratum of revenue can help your firm decide what clients are providing the profit to move your firm forward. This provides valuable marketing insights for advertising spend as well. Are businesses in a certain industry a really great match? Now you have a new focus and can gain more of your most ideal, profitable clients. Making the time to analyze these numbers and think strategically about the results will help to retain quality clients, enhance your credibility and help your firm grow.