Guest blog: The road to better law firm KPIs - actionable information beyond fees and time (by Graham Moore, Founder & MD, Katchr)
Working with wider, actionable KPIs
Data is not everything. Context is. You have plenty of data in your firm but how are you assessing it and what information are you focusing on? Do you know which are the right key performance indicators (KPIs) for you?
What I have discovered over the years is that most law firms tend to try to measure billing and recorded time (typically chargeable time) but are these two KPIs the right ones to focus on? Well, you need step away from KPIs and first consider precisely what objective(s) you are trying to achieve.
Performance is unmeasurable unless you have context and are able to compare that performance against an objective or target. If you have clearly identified your firm’s high-level objectives then KPIs should be easy to identify from there. The right KPIs are the ones that help you closely monitor every aspect of your progress towards those objectives.
If revenue growth is your firm’s primary objective, then your primary KPI should be revenue (fees billed). Revenue may not be your number one KPI, for example: if you have defined your high-level objective as “profitable growth maintaining a gross margin of 50%” then the KPIs you need to focus on are probably revenue and gross margin.
The correlation of different measures is important to understand because “you get what you measure”. By focusing too narrowly on just one measure of your performance (for example: fees) may get you to your targets, but at what expense?
Client satisfaction?
Gross margin?
Net profit?
Staff turnover?
Now you can see why the key performance indicators you choose are a very clear definition of your firm’s objectives.
Law firm managers have often asked me the same question, “How many KPIs should we be measuring?” Well, firstly, focus on the word, “key”. Not all indicators of performance are genuinely “key” but, as you have seen, you need to have a broad coverage across all aspects of your firm’s operations.
Different areas of a firm may need you to focus on different KPIs and all of the areas of your firm need KPIs in place. Only focusing on lawyers’ time and billing can fail to address that the overall performance of the firm also depends on the successful delivery of marketing, IT, HR and other objectives that are in play.
A solid set of KPIs will give you a well-rounded view of the performance of your firm. Those should cover at least four different areas:
Clients
Finance
Process
People
What you’ll see is that I have listed client KPIs ahead of finance. Although this is just a personal opinion, I believe it indicates the relative importance of the two KPIs when considering the achievement of your overall business goals.
So, your next questions is, “How do I define the right KPIs for my firm?” Ok, you have to start with clear descriptions of your objects – if, for example, your objectives use the widely-known SMART formula (specific, measurable, assignable, realistic and time related) then you are well on your way, as you have already defined your measures and timescales. To finalise the list of KPIs you need, you can now review your SMART objectives to identify what adverse outcomes you wish to avoid (e.g. unhappy clients) whilst also identifying the positive outcomes you’d like to see (e.g. more income).
This guest blog has been provided by Katchr, the business intelligence software experts. Read more about Katchr by visiting our web page.