Lock and key

When it comes to measuring performance, many firms just give their partners a stack of reports from their finance department each month. These reports tend to be detailed and voluminous, don’t highlight key points, and invariably relate purely to the firm’s financial performance – they don’t cover business development (BD), HR or other key areas.

This is where key performance indicators (KPIs) come in. Any legal business needs to identify, monitor and take action on a small number of measures to succeed. These measures will vary – from gross margin in a conveyancing firm, to number of days work-in-progress (WIP) lock-up in a personal injury firm, to earnings before interest and taxes in a corporate – but whatever they are, the key is to identify them, understand why they matter, and make sure everyone knows how well you are doing against them.

Implementing KPIs for the first time

Partners usually have clear headline goals, often relating to profitability – generally as an amount per partner or a net profit margin. Having the available cash to take these drawings and run the firm also features as a prominent goal. Identifying the levers that can be pulled to improve profitability or a firm’s bank position can be more tricky. Financial KPIs could include, in total and for each department or team:

•      profitability, measured through, say, total chargeable hours recorded / matters completed each month (in a department with, say, 15 fee-earners with an expectation of 1,200 hours a year, this could be approximately 1,500 a month);
•     total hours billed (ideally, all time recorded will be billed, but it may transpire that some of the 1,500 hours are written off);
•     total non-chargeable (or non-client) hours (particularly time spent on marketing, training and supervision – perhaps another 800 hours each month);
•     fees billed;
•     cash collected;
•     average hourly fee achieved;
•     departmental WIP days; and
•     departmental debtor days.

Arguably, if all these levers are being pulled, fees will be high and cash will be collected on time.

An over-focus on financial KPIs, however, can easily result in fee-earners neglecting other key areas such as BD, so firms need to measure and quantify these efforts, too. Measures could include, for each person and department, the number of articles written; events attended; and referrals made to colleagues.

Having identified the KPIs to be monitored, you need to raise awareness of their importance and ingrain this into your firm’s culture. This is normally a four-stage process.

First, design simple monthly reports that show the key figures for each team. This format will probably be a basic table displaying the figures for each month, perhaps with three-month totals, year-to-date and comparison to last year – whatever is most appropriate. For a small firm, this could be as simple as a single A4 summary showing the KPIs for each department, put on noticeboards and emailed to all fee-earners. It needn’t show individual figures, but it may show some totals that will cause discomfort and embarrassment. This is part of the process – KPIs, used correctly, will encourage fee-earners to get their bills out more quickly and get the firm paid on time.

Second, provide training to make sure everyone understands why these numbers are important and why the management team is looking at them. For example, one of my clients placed too much emphasis on fees per fee-earner, and paid a bonus relative to individual fees. The result was few bonuses, and the failure of any attempt at team-working, because everyone was hanging on to work. The shift in focus to team performance and explaining to fee-earners why that was a better measure led to increases in fees and profits.

Third, share information as widely as possible. Start circulating weekly / monthly / quarterly updates to all staff. Celebrate success and search out best practice and positive role models. One client awarded a quarterly marketing prize for the fee-earner who had done the most BD activities, to encourage fee-earners to do more – their quarterly newsletter included details of each quarter’s winner.

Finally, follow up to investigate why particular figures are not being achieved, and find solutions. Drop previous reports that may have conflicted, and make sure there is a clear focus at all levels on the same figures: whole firm; department; and individual fee-earner.

Reviewing KPIs in future years

You will find over time, and as goals are achieved, that some of the figures you monitor need to change and develop. The key is to review and refresh them periodically. Make sure they still reflect what you want to achieve as an organisation. Perhaps above all else, keep revisiting what is truly important to you in achieving your goals.