We discussed various strategies for enhancing profitability at a time when costs are at an all-time high, and all three panelists emphasized the importance of access to data visibility when holding lawyers accountable for their contributions.
Modern KPIs Paint a Full Picture
Creating goals to improve partner accountability helps set the foundation of a more commercially aware culture. Revenue and billable hours were for a long time the metrics many used to indicate success for law firms but by looking at different KPIs, law firms can get a more holistic picture of what needs to improve to increase the profitability of the firm.
Looking closely at Profit per Partner and Total Contribution could be key to understanding and improving profitability. Cary summarized, “Total contribution is the contribution of a timekeeper in terms of their originating attorney fee, their billing attorney fee, and their working attorney fee contributions without duplicating each of them. [Partners] only get credit for each of those metrics once, which is key for us in evaluating performance.”
Operating in a more cost-effective way means staying close to what is not being billed or collected as well. David Rueff also added, “I think another big indicator of health is write-offs and write-downs.” He continues, "For us, it's all about communication between lawyer and client. I think having data and tracking helps you identify problems before they get out of hand.” The value of tracking these metrics, as David notes, is to get more visibility into how a matter is progressing financially.
Building Accountability with Data Visibility
When partners understand how their billing and costs affect the overall success of the law firm, they are more empowered to work on their matters with commercial understanding. As was noted during the discussion, junior lawyers and associates see this level of accountability taken on by a more senior fee earner and understand that profitability of matters is their responsibility. The expectation becomes that the work that is done needs to be cost-effective.
“Utilization has really been something that we've been focusing on at an attorney level, especially for associates, over the past few years.” commented Zach building off Cary and David’s comments on performance metrics and actionable data.
He continued, “It’s about really going back to those self-inflicted problems. Where are the write downs beginning? Is the associate writing down time before it even gets to the billing attorney? That's been a big focus for us, what are we writing-off or writing-down from standard rates? How are those write-downs occurring?”
To surface the kind of data and insight needed to track modern KPIs and gain visibility on profit leakage, all three of the panelists implemented BigHand Business Intelligence. The solution provides real-time data so users can see firm-wide financial metrics and drill into matter-level data to make accurate business decisions that impact the firm's profitability.
Lawyers can be more transparent with clients, avoid write-offs and discounts due to billing discrepancies, and miscommunication on how much work a matter needs. It creates more accountability at the top and shows partners how they are performing against the targets they have set and how they compare to other partners in real-time.
Technology in Practice
“I think one of the things that has changed over the years, is increasing the access to financial information related to your matters. Our dashboard gives transparency internally about department and practice performance,” notes David.
"I remember a day when revenue was king. If you had large books of revenue, you were at the top of the heap. Over time, profitability has now become much greater in importance, and that is reflected in the dashboard. Our attorneys are using it throughout the year to monitor their performance. It's not something that they're only looking at as compensation starts, they're using it to manage current profitability and not just looking retrospectively at how their year was,” concludes David on how business intelligence technology has created more accountability on the profitability of individual matters.
BigHand Business Intelligence provides partners with in-depth and relevant financial information to keep them on track to grow these KPIs. Hear more from law firm financial leaders on how emphasizing profitability has become crucial to their financial strategy below.
