What gets measured gets improved. Many law firms fail to measure a number of critical performance indicators, meaning they fail to track behaviours and strategies which correlate with future financial and strategic success.
It’s common for firms to focus on billable hours as a success measure. While on the surface this seems to make commercial sense, it actually drives attitudes and behaviours that are detrimental to the firm’s success. Although fees are important – and relatively easy to interpret – looking at them in isolation can disguise important realities and encourage short-term thinking.
To generate sustainable growth and long-term development, you need to create incentives for a range of performance metrics. Qualitative performance measures, formalised and communicated, can enhance quantitative measures such as revenue.
For some firms and practice groups, two or three simple metrics are sufficient. But in many areas, a wider range of contributions concerning business, clients and teamwork is worth measuring. The list below acts as a starting point for your firm.
- Revenue growth rate – what is the pace at which you are growing firm income, compared with last year? This year’s target/budget? The overall marketplace?
- Net profit (billings minus expenses) – what is your three-year net profit trend?
- Gross profit margin – what is the percentage of margin that is gross profit?
- Utilisation rate – what spare capacity do you have to service new clients?
- Net promoter score – how likely is it that your clients will recommend you to someone else? Do you deliver more than they expect?
- Client profitability score – what profit do individual clients bring to the business, after taking into consideration the cost of attracting and keeping them?
- Sales conversion rate – how well do you turn referrals, telephone calls and web page views into paying work? No point spending more on lead generation if you cannot close.
- Relative market share – how big is your share of total client spend, compared with your competition?
- Staff advocacy score – how likely are your staff to recommend your firm as a place to work? Remember, clients will not fall in love with your firm until your staff do!
- Employee engagement level – how does staff behaviour contribute to the goals of the business?
- 360-degree feedback score – how do staff rate each other, as well as themselves?
- Absenteeism factor – how much is absenteeism costing the firm?
This is far from an exhaustive list of critical performance indicators. But if you regularly review your performance in just a few of these areas, you will build a firm of motivated and focussed staff, happy clients, and ultimately see more profitability than firms who insist that billable hours are the only metric worth measuring.
Remember, measuring billable hours gives you a quantitative, but not a qualitative measure!
Alistair Marshal – Partner Julian Midwinter & Associates
Alistair helps leading law firms, accountancy practices, retail banks and corporates attract new clients and win more new business. An experienced trainer and motivator, he gives professionals the strategic focus to achieve profit targets, and implement practical, cost-effective business solutions.