Key Takeaways
- Tracking KPIs is important for cash flow, client satisfaction, profitability, and long-term growth.
- There are different legal firm metrics you should absolutely be tracking to understand your firm’s performance.
- A law firm’s profit margin is generally considered good if it is around 30% to 35%.
- You can take steps like setting actionable goals and tracking key metrics to cut costs and improve your profit margin.
It’s not easy running a law firm. From timekeeping to vendor management to escalating operational costs, a lot can prevent you from serving your clients. We hear from struggling law firms daily who, faced with these hurdles, can’t find the path to law firm profitability.
Many law firms like yours worry it’s going to get worse before it gets better — expenses spiraling out of control — unless they take certain strategic cost-cutting measures. The financial strain has you considering downsizing your core team, but you know that would just make it harder to deliver the core services that keep you afloat.
What’s the answer?
Fortunately, law firms are finding effective ways to cut costs — saving thousands — without sacrificing their team or client satisfaction. In this article, we’ll explore specific steps you can use to improve your bottom line, enhance operational efficiency, and, most importantly, work toward long-term success. At Firmly Profits, we specialize in helping law firms like yours maximize savings and achieve financial stability. Give us a call at 941-202-4062 for more personalized support.
“Leah and her team do a fantastic job! Started with her as a solo law firm and now she is assisting as the firm grows. She is always available to answer questions and tailor her services to your specific needs. I highly recommend Firmly Profits!” – Kelli S.
Why is It Important to Track Law Firm KPIs?
Tracking law firm metrics takes the guesswork out of your law firm’s performance, helping you home in on what’s working to make the most data-informed decisions. Key performance indicators (KPIs) are measurable and trackable over time, allowing you to compare periods before and after you make a change.
This helps you see quantifiable improvements. It gives you relative confidence you’re moving in the right direction for law firm growth and long-term success. In short, KPIs help you:
- Monitor growth
- Stay accountable
- Understand trends
- Forecast performance
- Focus on what works
- Stop wasting time/money on what doesn’t
What Are the Key Metrics for Measuring Law Firm Profitability?
There are several KPIs you can track to measure your law firm’s profitability. Here are our top 10 KPIs that can help you remain informed on your law firm’s financial health and performance:
- Firm website traffic: Elucidate how many visitors enter your website to better understand and capitalize on missed new client opportunities.
- Landing page conversion rates: Find out if key web pages are converting visitors into new clients, test hypotheses, and increase conversion rates.
- Cost per client: Find out what it truly costs to acquire a new client and generate more clients for less.
- Number of appointments set: Compare website data, email data, and inquiry numbers to actual appointments to learn which methods generate the most high-value leads.
- Lead-to-client ratio: See how many appointments become clients and extrapolate how many leads you need to generate to keep a specific number of clients coming in the doors each month.
- Number of new clients by source: Find out where the most (and best) clients are coming from (Facebook, referrals, professional sites, webinars, organic traffic, etc.), allowing you to focus your efforts.
- Estimated value per case: Better understand who the high-quality clients are.
- Number of billable hours per client: Learn which types of clients and clients’ needs generate the most billable time and better track non-billable hours to understand service utilization.
- Client satisfaction rates: Evaluate how pleased clients are with client services and outcomes to understand the client relationship better and amplify review and referral activity.
- Profitability metrics: Compare client expenses to revenues generated to make the most data-driven decisions and maximize profits.
What is a Good Profit Margin for a Law Firm?
Typically, 30% to 35% is considered a good profit margin for a law firm. Research suggests net profit varies based on the size, location, and legal practice area. As an example, a small firm in a rural area may have higher net income because of the low overhead costs. However, at the same time, they may have lower revenues overall. This may or may not work in their favor.
Firmly Profit’s Top Cost-Cutting Tips for Law Firms
1. Set Clear Goals with Actionable Steps
In life and business, one must always have a destination to move in the right direction. Even though goals change over time, setting goals and tracking your progress toward those goals is key to maximizing law firm profitability. Clear goals allow you to streamline your operations by establishing set processes that tie specifically to a goal.
2. Track Key Metrics
You can’t know how profitable you are and where your money is being wasted if you don’t track those details. A law firm CRM helps you automate KPI tracking and legal analysis, saving you time while allowing you to see your performance in easy-to-understand visual reports.
3. Leverage Technology to Reduce Costs
Client management software, online billing, and practice management software are common forms of legal tech that save time, track ROI, and help firms scale operations. As you find ways to efficiently cut costs, you make room for developing scalable processes that enable steady law firm growth.
4. Outsource Day to Day Bookkeeping
Outsourced legal bookkeeping gives law firms clear financial insight, helping them make smarter decisions, boost profitability, and support sustainable growth.
The ultimate goal of our approach to bookkeeping is not only tax preparation but also providing businesses with the financial data needed to drive higher profit margins.
5. Negotiate Better Deals with Vendors
Chances are you have vendors you’ve worked with for years, and they want to retain your business. Re-evaluate your vendor contracts and what you should pay for these services in the current market. If your law firm is spending substantial money with one vendor or could consolidate to a handful of vendors, you may have opportunities to request bulk pricing.
6. Delegate Administrative Tasks
One problem we have noticed with clients is that partners and leaders are missing billable hours in time tracking because they are bogged down in their own administrative work. Hiring an administrator (or outsourcing the tracking of hourly rates) seems like an expense. However, if you could increase your ability to take on billable work and make higher profits, that person would pay for themselves and more.
We’ve also seen many law firms struggling to keep up with legal billing and the collections process. It’s crucial to have a system that tracks and manages accounts receivable. If you have clients with bills 30 days, 90 days, or 120 days past due, that impacts your growth potential, cash flow, and eventual write-offs. Your team and clients who do pay timely may suffer from your firm’s lack of resources.
Why Law Firms Choose Firmly Profits
Operational costs are skyrocketing with no end in sight. It’s time to rein in these experiences with strategic cost-cutting measures that support your team and their ability to serve your clients. We’ve heard from many managing partners and attorneys who are struggling to find the path to profitability. At Firmly Profits, we empower these law firm owners to meet their growth goals through strategic cost savings and data-informed decision-making through comprehensive fractional CFO services.
Testimonials
“Leah and her team do a fantastic job! Started with her as a solo law firm and now she is assisting as the firm grows. She is always available to answer questions and tailor her services to your specific needs. I highly recommend Firmly Profits!” – Kelli S.
“Leah is very easy to work with. She has gotten my financials cleared up to start the new year! Looking forward to working with her on a monthly basis.” – Terry R.
Put Your Law Practice Firmly in the Black
At Firmly Profits, we specialize in helping law firms like yours maximize savings and achieve financial stability. Give us a call at 941-202-4062 to learn more about cost-saving measures specific to your law firm.
Written By Leah N. Miller, MBA
My name is Leah N. Miller, MBA, founder and CEO of Firmly Profits. Starting as a paralegal, I worked my way up to become a firm administrator and CFO of a personal injury law firm in Fort Myers, Florida.
