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Growing Law Firms are Twice as Likely to Use Legal Reporting Tools

The latest numbers are in. And once again they confirm the effectiveness of legal reporting tools on the top three KPIs impacting law firm profitability.

The October 2021 Legal Trends Report by Clio looked at these three KPIs: Utilization, Realization and Collection rates. Across a multiyear study and tens of thousands of firms, the report correlated the effect of legal reporting tools on growing, stable and shrinking firms. It concluded that growing law firms are twice as likely to use legal reporting tools as shrinking firms. The difference reached as high as 175% in 2019.

2020 did disrupt trends in some areas. But firms using legal analytics software nonetheless saw growth in at least one of these three critical metrics during that time. Some even enjoyed revenue growth.

 

How Legal Reporting Tools Impact Utilization Rates

Utilization rates measure a firm’s workload and productivity. In other words: How much of an 8-hour day is devoted to billable work?

Utilization rates are calculated by dividing the number of billable hours worked by the number of hours in a day (8) or week (40). While some administrative focus is necessary for attorneys, aiming for maximum productivityy means a utilization rate as close to 100 percent as possible. (Source)

Clio’s aggregated data shows that only 31% of time spent working is typically classified as billable. 69% is considered “missing” or non-billable. Missing hours are usually the result of underestimating project scope or inefficient time tracking. Additional hours are often required to gather scribbled time tracked on miscellaneous papers, or even keep up with a paper system. Alternately, cloud-based time tracking makes it easy for attorneys to track as they go from anywhere.

The Clio report revealed that lawyers spend 2.3 hours per day on billable work, yet only bill 1.9 hours. The other six hours are spent working on administrative tasks, including 33% on business development, such as attracting new clients.  

This is clearly a recipe for becoming a shrinking law firm. Low utilization rates like these indicate a need for more clients or greater efficiency — or both. Fortunately, shrinking firms see a spike in these KPIs and revenue when they adopt legal analytics.

Growing firms, on the other hand, have seen their utilization rates steadily rise. Even in 2020, when utilization rates temporarily decreased due to the pandemic, otherwise growing firms were able to remain stable. How? Through legal reporting tools that automated much of the day-to-day administrative work and improved the client experience with virtual and self-serve options. These benefits enabled the other two top KPIs to increase. 

 

How Legal Reporting Tools Impact Realization Rates

Realization rates measure the potential value of work performed individually. In other words: How much of the potential revenue of a specific case is actually billed? 

The realization rate takes into account not just the time but the value of that time to the business financially. (Source) For example, are higher paid attorneys doing work that lower paid lawyers could handle?

The realization rate is calculated by dividing the number of invoiced hours by the actual number of hours recorded. The target goal rate is 95%, but Clio data reports that firms have been steadily falling below that level for several years to an average of 84%.

Low realization rates indicate serious inefficiencies, a lack of data-based case estimating, or an inability to efficiently assign tasks to the right employee. All of these challenges can be met with legal reporting tools.

Firms with legal reporting tools have the ability to know which clients are negatively impacting their realization rate. The technology can help them increase realization in these cases by automating tasks, identifying where to limit discounts and write-offs, or showing them how to vary a staffing mix to apply more tasks to lower paid attorneys. They may need to limit these clients in favor of others who offer higher realization and profitability.

 

How Legal Reporting Tools Impact Collection Rates

Collection rates measure a firm’s ability to capitalize on the work performed. In other words, How much of what is invoiced is actually paid by clients?

The Clio report concluded that the average collection rate for law firms in 2020 was 89%, reflecting the challenge of getting clients to pay their bills. 

Consumer data reveals the increasing preference for online payment modes, including credit and debit options. Legal reporting tools provide greater payment flexibility and convenience that clients crave. But that’s not all! Online billing solutions with billing management software benefit law firms, too. They automate invoicing and track outstanding bills. They also simplify the process of follow-up with clients who haven’t paid.

Does this efficiency pay off? You be the judge: 

  • 57% of electronic invoices to lawyers get paid the same day they are billed, and 85% get paid within a week. (Source)
  • Prior to the pandemic, electronic payments didn’t help bring in new matters, but did raise revenue (compared to those who didn’t use electronic payments.) But during the pandemic, electronic payments raised both casework and revenue. (Source)

 

LawKPIs Simplifies Legal Reporting

LawKPIs’ legal reporting software makes it easier than ever to quickly get the basic – or custom – reports you need to manage your firm and ensure profitability.

Find out how your firm can be among growing firms. Schedule a demo today.

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