Canada: Key Performance Indicators Revisited

Last Updated: March 8 2019
Article by Stephen Mabey

I have been told, and if recent inquiries are any indication, there has been a resurgence in the interest in Key Performance Indicators ("KPIs") among solo practitioners and small law firms.

Any discussion of KPI should start with a word of caution – KPIs are simply tools – they are no substitute for the use of common sense and good judgment when it comes to the management of your law practice or firm.

Successful practices and firms constantly seek a balance between the business and people. By advocating the use of KPIs I am not suggesting that all that counts in a law practice or firm can be counted but rather what gets measured is what gets done.

Before exploring some simple but effective KPIs it is important to understand what is required to make a particular calculation or ratio a KPI.

The number being measured should meet the following three criteria to qualify as a KPI:

  1. It must reflect the practitioner or firm's strategy and goals;
  2. It must be key to their success; and
  3. It has to be quantifiable.

As a result, just because a colleague or their firm utilizes KPIs that you do not, doesn't mean that you are managing badly. The importance practices or firms place on specific KPIs will change over time as they move along their individual evolutionary track.

Context is critical to the effective use of KPIs. For many the only benchmark they have is their own past experience. Unfortunately, access to benchmarking data in the legal profession is limited. This is particularly true in Canada, especially for solo practitioners and small firms. As a result, in order to have some context they must overcome their reluctance to compare themselves to US practices and firms of similar size.

The KPIs identified in the remainder of this article have been grouped into the following three categories:

  • Business Development / Marketing
  • Production
  • Financial

The following sample of KPIs are not meant to be all inclusive and is sensitive to the data readily available from accounting systems frequently used by practitioners and small firms.

Business Development / Marketing

Typically KPIs have focused predominately on the productivity and financial aspects of law firms. Practitioners and firms continue to explore business development / marketing KPIs to understand what will have the most meaning for them.

  • Client Growth Rate the ratio of the number of clients that the practice or firm handled its first matter for in the past 12 months to the total number of active clients (active can be defined as having handled a matter for in each of the past 2 of 3 or 3 of 5 years);
  • 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 any 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;
  • Number of Matters per Client the ratio of number of matters billed to the number of clients billed;
  • Average Fee per Matter the fee revenue for the year divided by the number of matters billed during the year; and
  • 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).

Production

To ensure the most accurate measurement possible, productivity KPIs utilize the concept of full time equivalent ("FTE"). FTE reflects how many actual timekeepers or staff your practice or firm had for the period being measured. For example, a lawyer who was with your firm for six of the past twelve months would be treated as one-half of an FTE in determining your lawyer count.

  • Leverage – the ratio of non-partner lawyers to Partners;
  • Percentage of Partners Hours the ratio of Partners hours worked to the total hours worked by all timekeepers intended to measure whether Partners are working harder or smarter;
  • Billable Hours per FTE Timekeeper (by category of timekeeper) – the gross number of billable hours worked by timekeepers in a category divided by the number of full time equivalents in each category;
  • Billings per FTE (by category of timekeeper) – the gross amount of fee billings by all timekeepers in a category divided by the number of full time equivalents in each category;
  • Average Worked Rate (by category of timekeeper) – the gross value of time worked for a timekeeping category as entered into work-in-progress divided by the related hours entered;
  • Average Billed Rate (by category of timekeeper) – the gross value of time billed for a timekeeping category as divided by the related hours billed;
  • Ratio of Averaged Billed to Average Worked Rate (by category of timekeeper) – the ratio of the average billed hourly rate to the average worked hourly rate for a timekeeping category. This can assist in extrapolating what the likely impact will be on billed fees of potential rate increases; and
  • Billable Hours per Legal Assistant – the ratio of the total billable hours for all timekeepers to the number of Legal Assistants.

Financial

Financial KPIs are evolving as the fundamental economics of law practices and firms change. This is resulting in differing views of what is critical to both tracking and measuring your firm's financial success. I direct you back to two of the criteria required to make a calculation / ratio be a KPI - it must reflect the practitioner's or firm's strategy and goals; and it must be key to their success. Using these two criteria will enable you to focus on the relevant financial KPIs.

  • Unbilled Days the ratio of the fee portion of unbilled work-in-progress to the average fee billings for the past 12 months; measures the length of time it takes you to bill the work you do;
  • Uncollected Days the ratio of the fee portion of accounts receivable to the average fee billings for the past 12 months; measures the length of time it takes to collect your accounts after they are rendered; " Revenue per Square Foot – the gross amount of fees billed by all timekeepers divided by the total square footage of office space leased by the firm;
  • Charge Off Percentage the ratio of the fee billings written off as uncollectible as a percentage of the fees billed for the year;
  • Net Income Ratio the ratio of the Firm's net income (income prior to any distributions to partners) divided by the total fee billings of all time keepers;
  • Average Net Overhead the net expenses (total expense minus billings of all non-equity partner timekeepers) divided by the number of Equity Partner FTEs. This is the net cost that each Equity Partner must cover before any profits are generated;
  • Average Daily Cash Requiremnents This is the cash receipts required to fund all cash payments (expenses, loan principal repayments, etc.) on an annual basis divided by the number of business days your practice or firm is open for business; and
  • Average Daily Cash Collections Rolling 12 months average of cash receipts divided by the number of business days your practice or firm is open for business.

The manner in which KPIs are presented is critical to the effectiveness of the KPIs. No matter what KPIs you track, reams and reams of paper or screens usually only serve to lessen the impact that the KPIs can have on your practice or firm's decision making.

KPIs are like any effective tool used to manage your practice or firm, in Albert Einstein's words "if you cannot explain it simply, you don't understand it well enough". One final note of caution - no one KPI tells the full story, but rather they must be viewed collectively to achieve the best informed decision making results.

Stephen Mabey is a CPA, CA and the Managing Director of Applied Strategies, Inc. Stephen's focus is on law firms in general and on small to medium size law firms in particular. He has written about and advised on, a wide range of issues including - leadership, business development, marketing, key performance indicators, strategic planning, mergers, practice acquisitions, competitive intelligence, finance, mergers, practice transitioning, compensation, organizational structures, succession and transition planning, partnership arrangements and firm retreats. In 2013, Stephen was inducted as a Fellow of the College of Law Practice Management in recognition of his sustained commitment to the highest standards of professionalism in law practice management. For more information, visit appliedstrategies.ca or connect with Stephen Mabey on LinkedIn at ca.linkedin.com/in/smabey.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Stephen Mabey
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions