Firms that use less traditional performance indicators can overcome the four most common shortcomings of the KPIs that most law firms use now
Strategic planning season is around the corner and law firm executive committees will pore over their key performance indicators (KPIs) from the past year in order to set goals for the new one. While this process is a critical step in understanding the firm’s business better, it almost never helps determine what to do moving forward.
The good news is that there are other, less traditional, performance indicators that firms can utilize to overcome the four most common shortcomings of the KPIs that most law firms currently are tracking.
1. What you’re measuring gives you insight… right after you need it
Traditional KPIs typically lack the timely, actionable insight needed to course correct before you evaluate the success of an effort. By the time you report a decline in revenue per lawyer (RPL), it’s too late to fill the business pipeline and drive growth.
Track leading indicators alongside lagging ones. As opposed to lagging indicators which measure outputs of efforts (for example, did the firm’s RPL increase in the last year), leading indicators tell you how likely you are to hit your goal.
For example, our research shows that law firm revenue is strongly correlated to top-of-mind awareness rates. Makes sense, right? If more buyers are thinking of your firm, the more often you will be considered for new work. Additionally, the research shows that the best way to improve your firm’s top-of-mind awareness is through direct lawyer outreach to clients and prospects. A leading metric might then be how many calls to clients with non-active matters are made in a week. Or, it may be how many invitations are sent from relationship partners to clients for firm events.
Paying attention to the small numbers (the number of calls being made) and the medium-sized numbers (your firm’s top-of-mind awareness) have a big effect on those large numbers (firm revenue growth).
2. What you’re measuring doesn’t tell you what is, and is not, working
Revenue per lawyer, profit margin, and (my least favorite of all KPIs) profit per equity partner (PEP) are big picture numbers. They tell you which direction the firm’s business is headed, but they don’t answer the all-important question: Why?
Track metrics tied to buyer behavior and market dynamics. If revenue per lawyer is declining, do you know why? Do you really know why? Are lawyers having fewer conversations with buyers so your top-of-mind awareness has dropped? Are clients becoming more favorable to one of your competitors instead of your firm? Have buyers shifted their spend to a new priority area? Are you missing out on a new opportunity?
In an ideal world, your firm wins work and clients don’t change providers from that point on. The reality is buying preferences change, aggressive competitors differentiate their offerings, or new entrants completely change the way business is done. Understanding market dynamics, buyer behavior, and how those align with your firm’s current approach is critical to ensuring your KPIs reach their full potential.
3. What you’re measuring isn’t aligned with what clients are seeking
Benchmarking KPIs — especially those big picture KPIs that law firms are so fond of — hardly ever accounts for how the firms you’re benchmarking against achieved their results. The buyer mindset is frequently the least accounted for data point… and the most insightful.
Track comparatively against the firms you are losing out to. Understanding failure, while slightly depressing, is the best way to avoid it in the future. What are the firms that are winning the work you’ve lost out on doing differently? How are buyers talking about those firms compared to what they say about us?
Our research throughout the pandemic showed dramatic shifts in why buyers favored one firm over another — and many firms struggled to pivot quickly to new demands from buyers and saw their market positioning drop as a result.
4. What you’re measuring isn’t targeted to your strategy (or worse, you have no strategy)
Which of the following initiatives has your firm undertaken within the last five years — or maybe you are looking to initiate in the next year?
- industry-focused approach to market;
- client feedback and service consistency; or
- client teams and internal collaboration.
Many firms are tackling one (if not more) of the above initiatives. Unfortunately, a few firms create new KPIs and continue to measure only RPL, PEP, and our other big picture numbers, and then call the initiative a failure after not reaping the results they expected.
Track the right KPIs for your strategic goals. Different strategies have different measures of success and different leading metrics that can help you achieve the results you are seeking. For example, for an industry-focused approach to achieve the growth results most firms want, our research shows a firm should plan for growth in top-of-mind awareness in a small selection of industry sectors. It’s important to know what percent of buyers unprompted say your firm’s industry expertise is among the best? It’s equally important to know what percent of your lawyers see themselves as having industry-specific knowledge?
A quick sidebar on strategy
Did you check off more than one of the above initiatives? That’s a problem. Too many strategic initiatives result in a diluted impact that any single one could have on your firm’s bottom line.
Did you not check off any? That’s also a problem. Our research shows that the above strategies (and a few others) substantially increase the share of spend you receive from a client.
KPIs are, by nature, designed to measure the success of what has already happened. KPIs do not provide insight into what is going to happen. These hidden performance indicators provide the market intelligence firms need to see the future more clearly and design tactical strategies that deliver results.
To learn more about the kind of legal market and financial insights you need to make the best strategic decisions for your firm, check out our new Strategic Insights offering.