September 19, 2006
Six Basic Law Firm Metrics
What top-level metrics should you track? If you are among the 20 percent of midsized firms who have a formal planning process, what you track depends on that plan and your objectives. But regardless, there are six basic metrics that every firm should track:
Productivity or Utilization
Effective (Blended) Rate
Margin
Days of unbilled fees (work in process)
Days of billed fees outstanding (accounts receivable)
Current performance should be compared to prior periods to determine if the firm's financial performance is improving, holding its own, or declining. It should be compared to the firm’s targets to determine if it is achieving its objectives. It should be compared to benchmarks of similar firms. Doing so will most likely indicate areas that deserve attention and that represent lost opportunities.
While I have not included it among the basic metrics, leverage is still the primary factor correlating with per-partner income. For example, in a recent survey, the top performing 25 percent of midsized firms had 2.5 associates for every partner, compared with an average of 1.3 associates for all firms. The chart below appears in the Juris Law Firm Economic Survey of midsized firms for 2005. The chart clearly illustrates the dominant influence of leverage on per-partner income.
If you need help computing any of the six basic metrics, refer to the previous posts linked below:
- What is Utilization?
- What is Blended Rate?
- What is realization?
- Measuring Law Firm Collection Realization
- Measuring Law Firm Margin
- Measuring Law Firm Work-in-Process Days
- Measuring Law Firm Accounts Receivable Days Outstanding
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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Filed under Benchmarking, Law Firm Bus Model, Leverage by Tom Collins