Armanino Blog

Making the Case for Performance Analytics for Law Firms

by David Roberts
February 28, 2017

As a managing partner or executive director, ask yourself whether you truly know everything you need to know about how your law firm is performing. What’s your return on investment for business development? Do you know your pipeline value per attorney, or the length of your lead-to-billing sales cycle? What’s your cash position? Which practice areas are stagnating, and which are growing as a percentage of firm revenue?  

You might believe that you know your business well, but if you aren’t actively measuring and tracking performance across metrics such as these, you may be missing the critical insights your firm needs to grow and prosper in today’s challenging environment.   

Data is everywhere, but who has time to analyze it?   
Today’s small and midsize law firms have plenty of operational data, but they often don’t have a way to extract the information needed and analyze it. Not only do they lack the right technology, they also typically don’t have the resources to gather and analyze business data that can help leadership better understand the firm’s actual performance on a day-to-day basis.

The accounting and finance staff have their hands full with day-to-day operational tasks such as billing and paying invoices, filing taxes, and handling payroll. Financial analysis has to take a back seat to more pressing accounting issues.   

Standard reports also don’t provide enough insight. While reports are readily available from billing, accounting, and sometimes customer relationship management systems, no one in the firm has the time and/or skill to further crunch the numbers, analyze them and determine the most important findings.

Lawyers and executives can’t be expected to be business analysts. Yet executive directors, managing partners and other leaders in the firm need operational and business analytics, particularly in these key areas:

  • Revenue and profitability: Today’s law firm leaders need more than an income statement to guide both day-to-day operations and the strategic direction of the business. While billing and accounting systems can provide basic reporting on billable hours by person or client, they can’t typically provide deep profitability analysis. For instance, which of your practice groups are on target? Which are exceeding goals, and how? Which clients are most or least profitable?       
  • Partner compensation: Nearly every firm tracks partner performance in some way, but many don’t have the data needed to better manage partner expectations and performance throughout the year, or even at year end. How much work did the partner bring in last month, last quarter, or this year compared to last year? How much time has the partner spent mentoring staff? Trying to get this information is difficult, often manual (think spreadsheets), and time-consuming, so it happens infrequently at best. However, you can’t have a conversation with a partner only once a year about performance. You must set expectations and then track performance on an ongoing basis, and for that you need the right data.
  • Business development: Although it is critical to their growth, firms often don’t have insight into performance metrics about this part of their business. Do you know your firm’s conversion rate from lead to opportunity? What about the conversion rate from opportunity to billing? How long is the cycle from an opportunity being identified to the work starting? Informed decision making in this area can mean the difference between growth and flat-line revenue.       

The benefits of faster, better insights
When law firm leadership has the right performance insights and analysis at their fingertips, decisions can be made faster and corrections can happen before minor problems turn into major ones. For example, if a key client defects or demand suddenly softens, firm leaders armed with the right insights can already know the best steps to take to protect profitability.

Managing partners also have more time to work on their billable duties, because they get the information they need to guide the firm, without the time and effort of trying to crunch their own numbers and do their own analysis. There’s also more time for strategic thinking on how to adapt to the fundamental changes happening in today’s legal industry.  

Finding a solution
Executive directors and managing partners have a lot of things to worry about these days. Lack of insight into their business performance shouldn’t be one of them.  Law firms have two ways to fix this situation: They can invest in technology, training and employees to handle performance analytics, or opt for a turnkey service that delivers customized financial and operating analyses and dashboards.

For the former, you should start with a requirements analysis to determine exactly what your firm needs from a performance analytics solution. While a cloud-based solution (software-as-a-service) can save your firm capital expenditures in the form of software licenses and hardware, don’t forget to factor in the cost of integrating that software with your accounting systems. Finally, you’ll want to plan for hiring new staff, as well as providing in-depth staff training to help them learn how to maximize the value of the new software for your business.

Alternatively, a turnkey service can be a cost-effective way to get the insight into firm performance that you need, offering you a predictable cost that can be less expensive than deploying and managing software, integrating it with your systems, and hiring and training staff to use it. Other advantages include a faster time-to-benefit, and expert analysis provided by legal and accounting professionals.          

Whichever solution you choose, you will have the tools to make better strategic decisions and successfully guide your organization in today’s highly competitive and changing legal landscape.

February 28, 2017

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