Canada: Key Performance Indicators - An Introductory Guide

Last Updated: January 26 2018
Article by Stephen Mabey

Introduction

Law firms of all sizes should calculate and track indicators of their performance and health. The most successful firms use these indicators to assist in making important business like decisions, in motivating and aligning behavior, and in adjusting to the new realities.

The challenge is to identify those specific indicators that are critical to the short, medium and long term success of your individual firm and then focus on them. Throughout this guide we will refer to this subset of critical indicators as key performance indicators ("KPI").

A couple of important contextual points:

  • It is unlikely that any firm will use all of the KPI identified in this guide; and
  • The importance firms place on specific KPI will change over time as they move along their individual evolutionary track.

The list of KPI identified in the remaining pages is not intended to be exhaustive but rather as collection of common and not so common KPI that firms are and will be using over time. The KPI identified in this guide are broken down into the following three categories:

  • Marketing
  • Productivity
  • Financial

A word of caution – KPI is simply a tool – they are no substitute for the use of common sense and good judgment when it comes to the management of your law firm.

What Makes an Indicator a KPI?

Indicators should meet the following three criteria to qualify as a KPI for your firm:

1. It must reflect the firm's strategy and goals;

2. It must be key to the firm's success; and

3. It has to be quantifiable

Your firm's strategic focus will impact its selection of KPI. For example:

  • Transaction-focused firms will undoubtedly have different KPI than relationship-focused firms;
  • Billable hour driven firms have different KPI than tariff driven firms; and
  • Firms at a growth stage in their lifecycle will have different KPI than firms at a succession or regrowth stage.

In this guide we have included KPI that apply to a range of "strategic focuses".

The fact that in a tariff focused firm the billable hours per lawyer would not be as relevant as the number of matters per lawyer demonstrates the importance of the first two criteria in defining which indicators are KPI to it.

The author is not suggesting that all that counts in a law firm can be counted but rather what gets measured is what gets done. Therefore, if an indicator is not quantifiable, it is not likely that it will be incorporated into your firm's decision making process which may in fact cause issues to go unaddressed.

Marketing KPI

Typically KPI have focused predominately on the productivity and financial aspects of law firms. Firms are in the early stages of exploring marketing and business development KPI to understand what will work best for them. The following list of possible KPI for marketing and business development in law firms are examples of various KPIs you might consider adopting / adapting for use in evaluating your firm's efforts.

  • Client Growth Rate – the ratio of the number of clients that the firm handled its first matter for in the past 12 months to the total number of active clients (active can be defined has having handled a matter for in each of the past 2 of 3 or 3 of 5 years)
  • Dormant Client Percentage – the ratio of the number of clients that firm has not handled a matter for in 2 of the past 3 or 3 of the past 5 years to the number of total clients
  • Average Fee per Client – the fee revenue for the year divided by the number of clients billed during the year
  • Average Fee per New Client – the related fee revenue for the year divided by the new clients (of clients that the firm handled its first matter for in the past 12 months)
  • Marketing Budget Ratio – the ratio of the total marketing spend (including salaries) to the total fees billed during the year
  • Business Development Ratio – the ratio of the business development spend for the year to the total fees billed during the year
  • Marketing Cost per Client – the ratio of the total marketing spend (including salaries) to the number of clients billed during the year
  • Business Development Cost per Client – the ratio of the business development spend for the year to the number of clients billed during the year
  • Average Fee per Matter – the fee revenue for the year divided by the number of matters billed during the year
  • Average Fee per New Matter – the related fee revenue for the year divided by the number of matters billed for new clients (handled its first matter for in the past 12 months)
  • Client Retention – the ratio of clients billed in the last 12 months to the total clients that had been billed in the 12 months prior to the last year
  • Growth in Top Clients – the ratio of fees billed to top 100 clients (number can be adjusted to size of firm) in the past 12 months to the fees billed to the top 100 clients in the prior 12 months.
  • Practice Areas per Client – the number of individual practice groups billed to clients on average
  • Number of Lawyers per Client – the ratio of individual lawyers who generate working fee credits billed to clients on average
  • Number of Matters per Client – the ratio of number of matters billed to the number of clients billed

Download >> Key Performance Indicators - An Introductory Guide

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