With only a glance, you have instant access to your car’s dashboard, displaying exactly what you need to know to diagnose a problem and determine what action to take next: fill the gas tank, change the oil, check the engine, or adjust your speed.
Your doctor uses a dashboard where she tracks lab results, examination notes, and your comments. That dashboard empowers her to diagnose and recommend treatment. In addition, successful business owners use dashboards. They track their business’s KPIs (key performance indicators) so they can diagnose problems, identify opportunities, and make good decisions. If you own your law firm, you’re a business owner too and need your own dashboard.
In fact, you’re not just a business owner, you’re a CEO. Tracking your numbers empowers you to make good decisions and know what to do when. For example, wouldn’t it be nice to know what needs to be tweaked to increase cash flow? Or, wouldn’t it be nice to how much you can draw from the firm without worry? Or, wouldn’t it be nice to not throw money at something that’s unnecessary? Dashboarding works in firms of all sizes and even for individual attorneys who want to think entrepreneurially, increase revenue, and build the department or law firm and life they love.
Law Firm KPI Dashboards: The Numbers You Need to Know
As you might guess, cash flow is the number one concern expressed by attorneys. Do you share that concern? If you suffer lack of consistent cash flow, what should you do? You don’t know - and I don’t know. No one knows until we do a thorough review of your KPIs.
Surprising to most attorneys, cash flow isn’t a problem. It might be why payroll scares the bajeezus out of you or what keeps you up at night, but it’s not a problem that can be solved independently. Cash flow is a symptom of an underlying problem(s) which will reveal itself via your dashboard.
Here are the 20 key performance indicators (plus one) you need on your law firm’s dashboard. I’ve included a brief description of any KPIs that aren’t self-evident.
- Client Satisfaction Rating. As part of your survey, have your clients rate their experience from 1 to 10.
- Debt. Note how much debt your firm currently has such as a line of credit, credit cards, and loans. Note the plan to pay off the debt. For example, the firm owes $20,000 on the Visa and we are paying $2,500 a month to pay it off. With interest, that balance will be paid off in 4.5 months.
- Run Rate. Identify your current run rate, which is based on the last 3 months’ revenues, if revenue has been steady. Run rate is the revenue your firm would create annually, if that revenue were to be consistent for a year. For example, if your revenue has been around $10,000 for the last 3 months, your run rate is $120,000. I got that by multiplying $10,000 x 12 months. Or, if your revenue is around $45,000 each month, your run rate is $540,000. I got that by multiplying $45,000 x 12.
- Annual Nut. Current anticipated annual nut, which is based on the last 3 month’s costs, if consistent. This is the total amount of anticipated annual costs, including team salaries and your salary, for a year. For example, if your monthly expenses are consistently $15,000, then your annual nut will be $180,000. I got that by multiplying $15,000 x 12.
- Anticipated Profit. Determine the difference between your run rate and nut (subtract #4 from #3, above). For example, if your run rate is $240,000 and your nut is $180,000 then your anticipated profit is $60,000.
- Revenue. The amount of revenue deposited into your operating account during the last full month. For example, if it’s June 29th, then this is the amount that was deposited in May. Or, if it’s November 11th, this refers to the amount that was deposited in October.
- Cash. The cash balance in your operating account today. Cash is king!
- Unbilled Work. The balance of unbilled work in your trust account today. Unbilled work only - don't count escrow funds or filing fees. Document your plan for getting that work done, bills out the door, and collecting.
- Monthly Nut. Your monthly nut is the cash you need in the next full month to cover your expenses, pay yourself, and pay your team.
- A/R. Amount of accounts receivable you have outstanding today.
- A/R Age. How old is the A/R. Be sure to document your plan to collect.
- WIP. Work in Progress is how many cases/matters you have open currently.
- New Cases. Number of new cases/matters you opened in the last full month.
- New Case Average Value. Estimated average value of these new cases.
- Cases Closed. Number of cases/matters closed in the last full month.
- Average Closed Case Value. Average value of the cases closed in the last full month.
- Appointments Set. Number of appointments for consults in the last full month.
- Consults. Number of potential new clients (PNCs) who showed up for those consults.
- Conversion Rate. Number of PNCs who both showed up and became clients.
- Marketing Actions. Number of marketing actions you or your firm took in the last full month.
- Marketing Activities. List the firm’s marketing activities. (I know, I know - not a number).
Law Firm KPI Dashboards: Keeping Your Sanity and Identifying Opportunities
I know that this looks like a whole lot of things to keep track of - things that you’re not currently tracking. And, it is. But, rest assured, your dashboard doesn’t need to be perfect immediately. Have an admin throw these numbers into a spreadsheet - or - to make things easier, reach out to me via LinkedIn and I’ll send you the Excel Sheet I give to my clients.
One of your team members can track and enter these numbers for you. You do not need to do this yourself - in fact, I recommend you don’t. As the calendar turns to a new month, don your CEO crown, look to your dashboard, and identify what adjustment will have the strongest impact on your firm.
Soon, you’re going to identify patterns in just seconds. You’ll see what you and your team are knocking out of the park and where you’re striking out. Of course, there will be base hits which are good; with an adjustment here and there, you might squeeze out a double, triple, or even, a homerun.
Key Performance Indicator Analysis
Knowing your KPIs is empowering. Let’s walk through a couple examples to get you started identifying opportunities for increasing cash flow.
Issue: Lack of Cash Flow – Example 1
Facts: You put on your CEO crown and observe that on average 14 PNCs (potential new clients) are showing up each month for a consult, but only 3 of the 14 become clients. That’s a conversation rate of 21%, which is horrid. I got the conversion rate of 21% by dividing 3 by 14.
Analysis: Before you had a dashboard, you might have been tempted to throw money at a marketing firm or schedule more presentations, but more marketing isn’t likely the best solution. Look at that conversion rate.
Is your marketing attracting the wrong people? Or, is something is happening once your clients get to your firm? How welcoming is your receptionist? How long do you keep PNCs waiting? What does your building, door, and reception area look like - smell like? How do team members behave with PNCs in the office? During the consult, are you talking about yourself or are you listening? Are you showing off how smart you are or empathizing? Are you demonstrating how you can help and quoting fees while looking your client in the eye? Are you explaining how to move forward to hire you?
Action Plan: Somewhere in this list, you’ll find something that can be vastly improved, likely with just a tiny adjustment. Make that improvement and then watch your numbers. If you’re on the right track, your numbers will move in the direction you’d like. If you’re not, try again.
Issue: Lack of Cash Flow – Example 2
Facts: You look at your dashboard and realize clients are not paying their bills. You have $40,000 in A/R (accounts receivables).
Analysis: It might surprise you to know this could be a marketing problem. Are you selling yourself as the low cost provider? Are you attracting PNCs you shouldn’t be working with?
Or, is this a PNC communication problem? Are you sharing verbally (and in writing) anticipated fees, billing practices, and payment expectations? Are you wimping out on billing or trying to compete by setting low retainers? Do you have evergreen policies and credit cards on file to ping? Are you afraid to collect for fear your clients won’t like you or will write something bad about you online?
Action Plan: Which rings true to you? Identify which of the above problems likely is the problem, implement a solution, and track your numbers so you know when you’ve fixed the problem. It’s okay to ask your team, a trusted colleague, or a law business strategy coach to help you see what you’re not seeing.
Law Firm KPI Dashboards: What to Do Next
You’ll love knowing how to make good decisions, seeing more clearly than ever before, and enjoying the confidence you feel about your law firm and your future. Neither you nor your dashboard has to be perfect to be successful - you do, however, need to get started. Have a team member throw these KPIs and the numbers you do know into a spreadsheet. If you want the spreadsheet I give to my clients, shoot me a message on LinkedIn. I’m happy to propel your success forward. The stronger your dashboard, the stronger your business and the more people you can help; that’s good for everyone.
Email: [email protected]
Serving as a law firm business strategist and attorney success coach, Wendy Witt is the founder and CEO of Attorney Alchemy which offers mentoring, coaching, and training for attorneys who want to live the success principles, think entrepreneurially, increase revenue, implement processes, and build the law firm/life they love.