In the first of a four-part series, Rachel Stone focuses on the financial measures used to assess a partner's contribution to the firm.

In the last issue of Professional practices news, we considered a model for balancing the various performance priorities of the partner role. This month, we look at the first of these priorities – financial measures – in more detail.

The financial priorities of many partners focus on one core measure – chargeable or billable hours. We often speak to partners who believe their entire contribution to the practice can be measured using this one indicator, and that this should form the basis for all decisions about promotions, profit share and future reward.

However, more and more firms are now looking to build a smarter set of financial indicators that recognise the practical challenges of building and maintaining a profitable flow of client work.

Core financials for every partner

The classic measures of billable hours and billable value are still relevant. But this is tempered by a clear understanding that an hour on the clock does not necessarily translate into an hour's value in the bank.

Alongside chargeable hours should be a set of measures, made up of basic financial disciplines, to turn hours worked into profitable income for the firm. This will usually include:

  • raw data in terms of total chargeable hours and a corresponding financial value for both partner and team
  • information on the amount of potential chargeable time that is actually billed to the client
  • write-off information at both initial billing stage and if a bill is subsequently challenged by the client
  • an assessment of amounts billable under contingent fee arrangements to the risk and cost of the project
  • management of work in progress – how quickly work on the clock is billed to the client and the daily cost of any delay.

Measuring partner profitability

On top of this basic information, there is a set of helpful questions that may be asked of each partner in terms of profitability.

  • Is work being done at the most appropriate and cost-effective level or does the partner want to keep it for him/herself?
  • Is the partner busy while his/her staff are under used?
  • Is the partner keeping a close eye on lock up and looking for every opportunity to use upfront payments, interim billing and close project management to make sure the money is coming in at the
  • earliest point? " Is the partner charging at a rate that allows for a reasonable level of profit to be generated on each job or does he/she tend to under price?
  • How does the partner plan for additional client requirements? Is there a danger of unrewarded 'scope creep' that eats into potential profit?

It is easy to forget that many senior professionals and partners have little or no financial education and are not aware of how some of these key measures and ratios could help them generate more profit for themselves and their team.

Next time, we'll consider how you can focus partner attention on measures concerning client retention.

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.