Is it time to consider a legal analytics system for your law firm? It’s no…
It’s no secret that time is money, especially for law firms. It’s a constant challenge to balance practice management with revenue generation. Even if you believe that technology reduces the inefficiencies that rob profitability, it can be overwhelming to know where to start.
Start with the top three law firm time (and revenue) wasters, that are also the easiest to fix:
1. Attorney Time Tracking
Not surprisingly, one of a law firm’s most problematic non-billable time expenditures is attorney time tracking. Constantly switching from billable to non-billable tasks, or between clients, is an unavoidable “evil” for lawyers. And the inefficiencies of this task cost law firms dearly.
The research on this is frightening: “You lose 10 percent of your revenue if you record time entries the same day. You lose 25 percent if you wait 24 hours, and 50 to 70 percent if you wait one week. Wait 30 days, and the losses may be as high as 200 to 280 percent of the revenue they should have.” (Source) These stats capture the high cost of inaccuracy in retroactively constructing time logs.
The 2020 Clio Legal Trends Report reports that utilization rates (a KPI that measures the percentage of reported billable hours against total hours worked) for attorneys is only 31 percent (i.e. about a third of their time earns revenue for the firm). However, that figure likely represents only 81% of their actual hours worked. (Source)
It’s important to measure your own utilization rate against this very low benchmark and take steps to remedy this major time suck.
A few tips and solutions to consider include:
- Use a time tracking solution that allows attorneys to easily input billable hours as they go. Options include voice-activated, convenient stop-and-start toggle switch, or even automated time tracking that runs in the background on computers. (Source) Also consider using a phone system that integrates call logs with your LMS data.
- Avoid manual time tracking across multiple notebooks, Post-it notes or the backs of envelopes. Pulling all those details together is guaranteed to waste time and result in underbilling.
- To assess and improve your utilization rate, attorneys must track ALL their time. It takes both billable and non-billable metrics to see where and how to shift resources to increase efficiency. Many non-billable tasks can be outsourced to third-party organizations or delegated to non-billable employees at much lower rates. (Source)
2. Law Firm Billing
Law firm billing is a major black hole. Compiling attorney’s billable hours from the various time tracking methods they use is the accounting department’s worst nightmare. Then, there’s creating invoices, reviewing for accuracy, and following up (sometimes repeatedly) on unpaid accounts.
But that’s not the only “cost” of billing. If utilization rates measure the number of billable hours reported (usually lower than actually worked), billing takes into account two even more important profitability metrics: realization and collection rates. These ratios measure how much revenue is actually realized from the hours invoiced. Remember, due to the challenges of tracking time, an average of 81% of billable hours worked are actually billed. Collections are the final piece of this particular profitability equation.
LexisNexis reports that law firm client payments lag an average of 83 days after an invoice has been issued. An example: “Firms using Clio currently issue over $1 billion in invoices annually and at any given time have at least $30 million in accounts receivable.” (Source). And that’s if they pay at all. The average collection rate is only 86%. (Source)
A few tips and solutions to consider include:
- Legal billing software is the answer. Clio’s 2020 data showed that 57% of electronic payments to lawyers get paid within the same day they are billed, and 85% get paid within a week. (Source)
- Look for a law firm billing system with one-click invoicing, automated payment reminders and automated non-payment penalty calculations.
- Research the profitability of alternative billing structures, such as up-front fee agreements and payment plans.
- Itemize billing descriptions clearly and simply to encounter fewer disputes later on in a case.
- Accept credit cards. 76% of consumers preferred to use their credit or debit cards (Source) and you’ll get paid 40% faster (Source)
- Maintain a personal touch. Consider a phased communications approach where, after one or two automated or personal follow-ups by the accounting team, the primary attorney on the case reaches out with the authority to negotiate alternative arrangements for the client. (Source)
3. The Legal Analytics Dilemma: Manual Report Creation
In each of the above time wasters, it’s important to track the ROI of the steps you take to improve efficiency. You’ll naturally want to know the revenue impact of every aspect of your law practice. Unfortunately, trying to measure the key aspects of profitability only compounds the very problem you’re trying to solve.
It turns out that for most firms, even those using Clio management software, simply trying to track utilization, realization and collection rates creates an additional drain on time, resources and patience. Most firms spend 5 or more hours a week building and maintaining spreadsheets out of Clio systems, specifically. In other words, it’s not simple.
A legal analytics solution that fully integrates with your LMS addresses all your time wasters, starting with the struggle to compile your data for easy and actionable insights. LawKPIs was designed to integrate with Clio and other law practice management systems. It streamlines your law firm’s vital reports into convenient, powerful dashboards, saving many hours each week in tracking profitability.
As a result, you gain:
- Customized or out-of-the box integrated reports
- Control and visibility into every KPI you want to track
- Confidence to make decisions
- Insight into which cases are profitable
- Better use of employees
- Less burnout for staff
- Fewer write-offs
- A competitive edge
- The insight to spot trends and optimize pricing
- Better marketing performance
- Increased profitability and growth of your law firm!
But don’t take our word for it. David Hilliard, COO of Durbano Law Firm says:
“Law firms often need smart business tools to grow. We looked for a resource that would take our CLIO information and generate useful reports at a glance using charts and graphs.
LawKPIs nailed it. They picked up where CLIO stops and closes the gap on vital KPIs that help us make sound business decisions for our firm. They even took time to listen and customize reports that we needed – tailored to our needs…and they responded quickly to every request.
We are happy to recommend LawKPIs to maximize your law firm, save time running reports, and quickly measure your success.”