One of my first best bosses was fond of saying “measure what you treasure” (it’s catcher than the Peter Drucker formulation). But finding the right things to measure in a law practice can be confusing. A recent guide from Clio recommends 62 Key Performance Indicators your firm should measure. 62 KPIs! That’s a lot of metrics.
Before I get to the six measurements I care most about, understand that the thing I treasure is the flow of work through your law practice. Specifically, I care about flow in your delivery pipeline.
Expanding briefly on the Theory of Constraints I've written about before, there are three high-level systems that make up a typical law practice: the getting the work system, the doing the work system, and the getting paid system.
I’ll wager that the system you most feel pressure to improve is your getting the work system: your sales and marketing pipeline. Some of that pressure is natural — after all new work is the lifeblood of a practice. But also, much of that pressure is manufactured by the sales and marketing vendors that use their own tools to attract you into their biz dev pipelines. If they’re worth their salt, they’re using metrics like lead acquisition rate and conversion rate to measure the effectiveness of their efforts.
Next in line is probably your getting paid system. This also has a natural attraction — after all, revenue is the lifeblood of a practice. Like with biz dev, there are tons of businesses who would love to convince you to adopt their time and billing and payment tools. The metrics they care about include things like utilization rate, realization rate, and collection rate.
Which leaves the doing the work system as the often distant third. From the lawyer's perspective this is understandable — after all, the work is complicated and variable. We don’t exactly produce widgets, right?
(I think there are a lot more elements of law practice that can be productized than most people realize, but I’ll argue that point another time).
From the client’s point of view, however, your delivery pipeline is the most important by far. Clients don’t hire a lawyer to get their problem worked on, they hire you to get their matter solved. Clients (usually) understand that the complexity of the legal system frustrates instant gratification; but, all else being equal, the sooner their matter is finished the better.
There are two ways to measure how long it takes work to flow through your doing the work system, each measures a slightly different (but related) thing:
- Lead time measures the duration from your commitment point to your your final delivery to the client. I.e. the point when you agree to do the work — probably when the client signs your engagement agreement and makes payment arrangements — up to the point the client receive their finished good (whatever form that takes in your practice). Lead time is a proxy for how long the client must live with whatever risk or uncertainty they’re experiencing that they hired you to resolve.
- Cycle time measures the duration from when you (or your team) start work on the matter to the point where you consider the matter closed in your system. It excludes the gap between when you engage the client and when you actually begin work on the matter. It also extends beyond your delivery of the final product to the client to when you don’t have any other work to do on the matter.
Both lead time and cycle time are important to understanding how work flows through your system. If I had to chose just one, I’d start with measuring cycle time. But I can’t think of a good reason why a law practice wouldn’t be able to measure both.
The next metric is one that hourly billers already pay close attention to: working time.
- Working time is the total amount of active time your team spends working on a matter. Put another way, it is the amount of their finite capacity that your team members apply to a particular matter.
This is the number you multiply by your hourly rate (before you write those hours down). If you’re not an hourly biller, don’t worry — you don’t need to measure working time in 6 minute increments if that makes you as crazy as it used to make me. But it is important to have a rough sense of working time: .25 increments if you can swing it, but .5s are fine too. If you use good online kanban software, they will calculate working time for you based on the amount of time the matter’s card spends in an “in progress” column.
We’ll use working time and lead time in a future post to help improve your overall client experience, but for now let’s move on to the 4th metric:
- Matters in progress is the total number of open matters in your workflow. I typically calculate this as matters that have passed your commitment point but are not yet closed in your system. If you use practice management software, you can probably get this via an open matters report (we just care about the count).
This is essentially the law firm version of tracking work in progress, or WIP, for your delivery pipeline. It is an inventory of all the commitments you’ve made to clients to handle their legal work.
(Note that WIP in the doing the work system is different from the WIP that many lawyers know from their getting paid system, which is hours tracked but not yet billed. Both are a component of your practice’s overall work in progress.)
While these first four metrics are valuable both on an individual matter basis and as a periodic average, the next two are only meaningful as averages. Monthly is a good place to start, but you can adjust longer or shorter depending on the nature of your practice.
- Arrival rate is the rate at which new matters arrive at the commitment point of your delivery pipeline. You may already track this as part of your biz dev pipeline, only there you’d call it close rate (as in closing sales).
- Completion rate is the other bookend, the rate that you finish work on matters in your delivery pipeline. Depending on how you do things in your practice, this can vary based on when you consider a matter closed. My preferred definition of “closed” is when you don’t have any more work to do on the matter in the delivery pipeline, regardless of whether you still have it open for purposes of collecting money in your getting paid system. But use whatever version is easiest to report on to start.
Once you have this combination of metrics, you can start combining them to yield useful and actionable information. If your arrival rate exceeds your completion rate, you can be sure that your matters in progress figure is going to grow (as will your lead time). Comparing your lead time and cycle time can help you see when you have issues with closing out matters (or getting them started). And comparing working time with lead time is the best possible measure of your practice’s overall efficiency.
I'll dive deeper into how to use these metrics to diagnose and solve common workflow problems in some upcoming posts.