Law Firm KPIs Deserve Attention

Author: John Fitzgerald, CPA

Law firms that want to survive and thrive in today's competitive legal environment must pay attention to certain Key Performance Indicators (KPIs) inside of their firms. Understanding these metrics will allow the firms to improve in areas where expenses can be curtailed and profits enhanced. The result will be more profitable law firms, which will enable the firms to retain high-performing personnel.

Firms should focus on KPI's that provide insight on performance in the following areas:

  • Profitability
  • Production
  • Expenses

Each area listed above was discussed at a Managing Partner Forum hosted by Berdon LLP recently and is described in more detail below.

Profitability

Legal consultant Altman Weil reported in a 2016 survey, Law Firms in Transition, that only half of all firms expect to have more equity partners five years from now than they have today. With an eye towards improving profitability, firms nationwide are addressing the issue of underperforming partners. In many instances, long-standing equity partners are being demoted to non-equity partners, accepting Of Counsel status, or being asked to leave their firms.

When assessing profitability, firms should not only examine gross revenue and net operating income per attorney, but should also examine departmental profitability. In order to perform a proper assessment of departmental profitability, it is important for management to understand how to deploy resources to obtain the best return on their investment.

Law firms that want to survive and thrive in today's competitive legal environment must pay attention to certain Key Performance Indicators (KPIs) inside of their firms. Understanding these metrics will allow the firms to improve in areas where expenses can be curtailed and profits enhanced. The result will be more profitable law firms, which will enable the firms to retain high-performing personnel. Firms should focus on KPI's that provide insight on performance in the following areas: Profitability Production Expenses Each area listed above was discussed at a Managing Partner Forum hosted by Berdon LLP recently and is described in more detail below. Profitability Legal consultant Altman Weil reported in a 2016 survey, Law Firms in Transition, that only half of all firms expect to have more equity partners five years from now than they have today. With an eye towards improving profitability, firms nationwide are addressing the issue of underperforming partners. In many instances, long-standing equity partners are being demoted to non-equity partners, accepting Of Counsel status, or being asked to leave their firms. When assessing profitability, firms should not only examine gross revenue and net operating income per attorney, but should also examine departmental profitability. In order to perform a proper assessment of departmental profitability, it is important for management to understand how to deploy resources to obtain the best return on their investment.

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