Due to the ethics associated with the legal profession, many law firms try not to emphasize their profits or how much money their firm has made. However, like many other businesses, law firms need to keep track of what is going on in their firm – and not just how much money they have in the bank – to verify how they are doing. In truth, revenue only represents one factor in the overall financial health of a law firm.
To better help you understand how you can assess the overall health of your firm, we have prepared the following guide. In it, we will go over the other factors and pieces of information that should be reviewed on a consistent basis to assess your firm’s wellbeing and how Back Office Legal can ensure you are doing everything possible to meet your goals.
A great way to see how your firm is doing is to keep track of new clients, specifically how many prospective clients you create each month and how many new clients you typically engage with per month. In addition, you will also want to keep track of your case volume, which is the number of cases you have active at any point in time.
The best way to ensure that these figures are accurate is to create a spreadsheet or use a Customer Relationship Management (CRM) system that will allow you to keep track of these figures and provide you with an opportunity to see client trends on an ongoing basis.
The utilization rate is the time a law firm spends on billing compared to their target hours (the amount of time they are supposed to bill). This means that if you have a weekly billable target rate of 40 hours, but the actual billable time is 35 hours, the utilization rate would be 87.5%.
Tracking these rates can allow your firm to see who your top billers are in the firm, figure out ways to help employees who are struggling with billing, and set performance goals for the whole firm.
Depending on the law firm, the legal staff may be required to track all of their time and not just their billable time. This is because the firm’s owners or partners may want to understand how much time their staff is spending on certain tasks.
As a result, the realization rate is defined as the number of billable hours compared to the total amount of hours a firm captures. For instance, let’s say you clocked 55 total hours worth of work time in a week, but only 40 of those hours were billable, then your realization rate would be around 73%. This figure can help your firm figure out how much of your work focuses on administrative work and how much focuses on actual legal work.
Although firms understand how important it is for them to track their billable hours and then collect this money from their clients, this task still remains a massive undertaking for many legal professionals, especially the smaller law firms.
Worse yet, many of these firms may not even realize that improper collection methods cause them to miss out on a significant amount of money that is likely falling through the cracks.
That is why tracking the collection rate, which is the amount of money a firm collects for their invoiced work, can help firms understand how well their law firm is performing. In general, the top-performing legal firms have a collection rate of over 90%.
Unfortunately, law firms have enough going on that tracking each of these factors and making sure that their firm is meeting its financial goals may not be a top priority. Fortunately, when these firms work with a legal process outsourcing firm, they will not have to track these critical figures on their own or take action to fix what is not working. Rather, they can focus on more essential tasks like securing new clients and growing their business while these back office legal professionals take care of the administrative tasks and functions.
At Back Office Legal, our professionals have been supporting both large and small law firms for years with their client management tasks and their back office services, including their accounts receivable management, law firm billing, and law firm billing and collections practices to make sure these firms maximize revenue and their operational efficiency.
Take, for example, our billing and collections services. When you outsource these tasks to Back Office Legal’s experienced client account management professionals, we have been known to collect more than 90% of your revenue before your clients’ terms are even due. This is significant for firms that are tracking their collection rate to understand their firm’s overall health.
If you want more details about how you can track the health of your law firm or how Back Office Legal can help you meet your goals, contact us today for more information.