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KPIs crucial in monitoring firm profitability

|Written By Alexia Kapralos
KPIs crucial in monitoring firm profitability
Mary Juetten said that law firms could track their metrics by using Key Performance Indicators.

By using key performance indicators, law firms of all sizes can measure and analyze profitability and financial success to help indicate what should be done in the future of running the firm by informing strategic decisions.

Mary Juetten, founder of Traklight.com and author of Small Law Firm KPIs: How to Measure Your Way to Greater Profits, discussed how to use KPIs, their benefits and exposed the number lawyers in the room who don’t use this tool to help with understanding and predicting their earnings, during her presentation called “Being profitable: Measuring what matters to your bottom line,” given at the Small Law Firms and the Business of Success event at Thomson Reuters in Toronto Nov. 2.

“It’s just a measurement. It can be as simple as how many billable hours you had in the past month,” she said. “I wrote a book … it has 41 KPIs in it. In no way shape or form should you start with all 41. Start with where your pain points are.”

When Juetten asked during her presentation how many lawyers in the room used KPIs to monitor their business metrics, almost no one raised their hand. She added that often, lawyers might be doing this and not even realizing it.

To use KPIs, no sophisticated software is required – Microsoft Excel works well, she said. Excel allows for the creation of charts, along with allowing for mathematical formulas and calculating the numbers, which, once examined, generate predictions for the firm.

Focusing in on the areas that need most improvement in the business starts with the client. She explained that this area is important because clients are the ones who generate cash flow, and often repeat business, but it’s also easier to upsell current clients on legal services rather than new ones. She continued to say that clients are demanding more for less and lawyers must be paying attention to their needs.

One of the KPI calculations Juetten explained was the net promoter score. This calculation is an estimate of what clients would rate the services they were provided with and whether they would recommend the firm or not. This is significant because she said new clients frequently come from referrals.

She said that data is gathered by sending out client surveys on platforms such as Survey Monkey or Google documents.  The goal is to have them elaborate on why they chose the ratings they did so firms know how to improve or continue to operate in the future. Respondents should be identified so firms can follow up.

To calculate NPS, ratings must be gathered in three categories: promoters, neutrals and detractors. A promoter score is a nine or 10 out of 10; a neutral score is seven or eight out of 10 (which is ignored in the final calculation) and a score of six or lower is a detractor.

Afterward, results of the survey are to be organized into a chart. Show how many people out of the total voted “promoter”, “neutral” or “detractor” and calculate the percentages (remember: neutrals don’t count and those numbers are thrown away). For the final number, subtract the detractor percentage from the promoter percentage. The value should range from -100 to 100 per cent.

According to Juetten’s white paper, Using KPIs Effectively: Is Your Firm Measuring What Matters?, the average NPS for the legal industry last year was 23 per cent.

“It’s interesting to note that many think of success as being above 50 per cent or an NPS target of 75 per cent or above. Remembering that you are working with a possible result from negative-100 per cent to positive-100 per cent helps to but the 23 into perspective,” Juetten said in the white paper.

Another KPI Juetten focused on during the presentation was for predicting the potential client pipeline. This gives the perspective of potential profits and allows for thinking about the client “before they’re clients.” This helps solve possible staffing needs down the road, whether more or fewer staff members are needed, or if a firm doesn’t have enough work in the near figure.

To figure out the pipeline, you need to calculate the adjusted value per client, which is a projection of what might be made financially. You multiply “$Value” (projected earnings from a client) by the “Go” per cent (the chance a client will go forward using your firm for the matter) and “Get” per cent (chance of getting the work).

 By adding up the adjusted value for each client, you get your potential client pipeline.

Juetten suggests making a plan on which KPIs to calculate first and align these to your law firm’s goals; tailor then to your practice because every business and its needs are unique. 


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