Don’t touch my KPI’s!
It is very important to keep track of certain things in your law practice. Take a few minutes to come up with your Key Performance Indicators (KPI’s) and this column will help you measure those KPI’s. Before your eyes glaze over, let me explain what I mean.
It is important to be aware of the health of your practice. Are you getting enough clients? Are you making enough money to pay overhead and yourself? Are you producing quality legal work for your clients? These simple questions determine whether your office succeeds or fails. Developing a system of KPI’s will help measure these important aspects of your office and show you what needs to be improved. There are three main areas which you need to determine your KPI’s.
The first KPI – leads to conversions
Your first KPI should be the source of your clients. If your phone (or inbox) is not ringing, you are not getting new clients or cases. You need to know what makes your phone ring. Where do your new cases or clients come from? I attribute the success at the office to my ability to attract new cases and that comes from monitoring where the cases come from.
Keep in mind there is a difference between leads and cases. That’s where clients you want and your conversion rate come in. At McCready Law, we track every lead which contacts the office. Next, we track how many leads are cases we want. The next KPI is how many wants we convert into cases. It is essential that your office track leads, wants and conversions. These numbers will differ by practice area and even by attorney. Let’s examine a few examples.
If you are a bankruptcy lawyer, you will want to increase your leads but your wants may be much lower. People may not qualify for bankruptcy or may not be able to afford a bankruptcy lawyer. Out of those leads, how many clients do you want? These would be clients who are eligible for bankruptcy and have the ability to pay your fee. How many of these wants are you converting? You should be converting a high percentage of your wants, or else you are not selling yourself or your practice well enough.
If you are a corporate lawyer, your leads may be much lower, a larger percentage may be considered wants, but your conversion rate may be lower. You need to examine each of your KPI’s and address deficiencies. Do you need to increase your leads? Are you too selective or not selective enough with cases you want? Or, are you not converting enough clients you want into cases in your office?
Perhaps this will make more sense with actual numbers. In a typical month, our office will receive about 150 leads, or new case inquiries, per month. I keep track of that number, because if my leads go down, it means our case volume will go down and our revenue will go down. If our leads show a steady rise, I can plan on staffing increases. From those 150 leads, we will usually want about half of the leads. Some leads are not about personal injury or workers’ compensation cases (I usually refer those clients out to other lawyers) or are clearly no case. So, our want ratio is usually around 50%. If we have 150 leads and we only want 50 cases, that may mean we are screening the cases too rigidly and declining some cases we probably should have taken. On the other hand, if we want 100 out of 150 cases, perhaps we are not being selective enough. We also track our case closed with no recovery as a KPI, and that comes from our conversion rate, but that is more advanced than we need to consider for this column. Figure out what your want ratio is and track that each month. From the 75 wants each month, we typically sign up 65 or so. Our conversion rate (wants to sign-up) is usually 85%. I would like it to be closer to 90-95%, but we do pretty well.
Figure out the number (and source) of your leads per month, decide what the proper want ratio is for your practice and then examine the conversion rate for the cases you want. By tracking these numbers, you can see where your practice is going in the future.
The second KPI – progress of your cases or clients
No matter your specialty, you need to keep your cases or clients moving. The quicker your cases move, the sooner you get paid and the happier your clients will be. No matter your practice area, delays in handling your clients’ matter do not help your client, nor you. So, why not keep track of what moves a case along? Once again, your KPI will differ on practice area. In our practice, we track how long it takes between the time the client is done treating and the time the demand is mailed. This is the time it takes for us to obtain medical records and send out a demand. The sooner a demand goes out, the sooner we will get an offer or go to litigation. When our cases are in court, we track the time it takes to complete discovery. The sooner the better. If we don’t receive answers to our discovery in a timely manner, we file a motion to compel. Likewise, we ask the judge to put deadlines on taking doctors’ depositions. No matter the practice area, you can find the average of the time it takes between phases of representation. If you know the average, you can figure out why something is taking longer than the average. Also, you can put measures in place which shorten the time between case phases. No client will thank you for dragging out a case, but you will get clients who will be pleasantly surprised when you finish their matter quickly. That’s what a KPI can do for your practice.
The third KPI – getting paid
If you track the first two KPI’s, you will notice your collections improving. You will generate more leads, convert more clients, and resolve cases quicker. But, never forget to track your receivables. You need to know who owes you money, what cases are pending, and what income you can expect in the future. This is the revenue side of your practice. The second half of this KPI is a budget. It took me over ten years of running my own firm before I developed a budget. A budget simply estimates what you should be spending each month on your office. There are no consequences for not following a budget, but realizing how much certain things cost on a monthly basis is important. A budget is simply another way to measure your KPI’s on the profitability of your firm.
There shouldn’t be any financial surprises if you accurately track your fees and expenses and review them periodically. If you experience cash shortfalls, determine what is causing the deficiency and what you can do to avoid being in that position. Worrying about paying your bills causes a tremendous amount of stress. Do what you can to avoid this situation by monitoring your fee and cost KPI’s.
KPI’s can show you where you are going and what things you need to address in your practice. Don’t leave it to gut feelings. I did that for far too long before realizing that I could measure the health of my practice. Figure out what your KPI’ are and begin to track and measure them. You’ll find amazing consistency and you can use that as your benchmark going forward. If you have any questions about developing KPI’s for your practice, feel free to contact me. I’d be happy to help!