Keeping Partners Informed with Key Performance Indicators

Keeping Partners Informed
with Key Performance
Indicators
Presented by
Jay Erdman, CPA
FM01
Saturday, 10/26/2013
8:00 AM - 9:15 AM
Regions 1 & 3 ALA Presentation:
Keeping Partners Informed with Key
Performance Indicators
KPI
October 2013
Jay Erdman
Rippe & Kingston
Serving Law Firms Since 1979
Thank You
Thank you for inviting me to present!
2
1
Census
Size of Firm
•
•
•
•
•
•
•
< 10
11-25
26-50
51-99
100
250
500
Note: Size does not really matter.
3
THINK BIG!!!
The ever-changing
Legal Marketplace demands it...
4
2
KPI FOCUS
5
Law Firm Profitability Formula
Income
+ 100 *
+
Salaries
_
Operating Expenses
=
Partner Profits
+ 100 *
All Additional Revenues or Cost Savings Go Directly to the Bottom Line…
and Directly Increase Partner Profits.
6
3
Law Firm Profitability Formula
Income
+
Salaries
_
Operating Expenses
=
Partner Profits
+ 100 *
- 100 *
+ 100 *
- 100 *
Reduction in Income or Increasing Expenses works just the opposite…
7
Law Firm Profitability Formula
For Example:
Revenue
$17,000,000
Direct Cost
$6,000,000
Indirect Cost
$5,000,000
Partner Profits
$6,000,000
8
4
Law Firm Profitability Formula
A 10% Revenue Increase Equates to
a 28% Increase of Partner Profits
Revenue
$18,700,000
Direct Cost
$6,000,000
Indirect Cost
$5,000,000
Partner Profits
$7,700,000
28%
9
KPI FOCUS
Revenue Enhancements
10
5
Goals
Keeping Partners Informed with Key Performance Indicators
(KPI)…
• Do Partners want to be informed?
• Is there such a thing as TMI for Partners?
• Choose your battles…
11
Goals
Should you use ‘herd mentality’ and do what other Firms are
doing?
(Keeping up with the Smiths’, Jones’, and Does’)
12
6
Goals
KPI Scope...
• Measure against past performance for improvement
measurement
• Use them to develop strategy (goals) and then measure
against that strategy (goals)
• Provide (some) objective measurement against other
entities in your same industry
13
Goals
This analysis is going to suggest that you:
• Compare the Firm against itself (history) and strategy
(goals/budgets)
• Supplement your Firms’ strategy with industry
knowledge
Remember, there is no single ‘magic silver bullet.’
14
7
Goals
• Various Resources
• Price Waterhouse Cooper
• Citibank
• Etc.
• Comparison Factors
• Size of Firm
• Specialization
• Area of Law
• Clients (Industry, Size)
• Geography
15
Today’s Agenda
• Key Performance Indicators – Basic
• Key Performance Indicators – Intermediate
• Key Performance Indicators – Advanced
But...
KPIs are not always a one line percentage statistics, but can also
include supplemental reports that require analysis.
Often simplified into a statistic, KPIs can require reporting
that needs to be analyzed.
16
8
Today’s Agenda
KPI come in two flavors:
#1
Statistic - expressed as numbers or a percentage that can
be compared against a like statistic.
#2
Reporting - requires the user to analyze the elements of
the report to reach a conclusion.
17
Today’s Agenda
#3
Firm statistics don’t improve unless Individual
statistics improve. This presentation will also address
methodologies for monitoring individual statistics to
enhance Firm statistics.
Therefore... Everyone (grinders, minders, finders) has
KPIs to pay attention to.
18
9
Overview
B
I
A
Basic
Intermediate
Advanced
1
Practice Development
Practice Development
2
Resource Management
Resource Management
3
Asset Management
Asset Management
Asset Management
4
Production Statistics
Production Statistics
Production Statistics
5
Financial Statements
Financial Statements
Financial Statements
Profitability Analysis
6
19
B
Basic
Resource Management
a. Monthly Calendar
b. My Time
2
4
5
6
Intermediate
Practice Development
a. Opened Files by Area of Law
- Matter
- Client
1
3
I
Asset Management
a. Unbilled Time / Aging
b. Unbilled Cost / Aging
c. A/R with Aging
Asset Management
a. Credit Limit Reporting
b. Asset – Turn and Days
c. New Clients/Matters
Production Statistics
a. Key Statistics
Production Statistics
a. Utilization / Capacity Analysis
b. Rate Assessment
c. Write Off Analysis / Gaps
Financial Statements
a. This year vs. last FS
Financial Statements
a. Budgets
b. Profit Plan
A
Advanced
Practice Development
a. Client Revenue by Year
b. Matter Revenue by Year
c. Cross-selling Report
d. Client/Matter Minding
Resource Management
a. My Team (budgets comparison)
b. Cross-working Report
Asset Management
a. Operational Statistics Analysis
• With FTE Equivalents
Production Statistics
a. Operational Statistics Analysis
• With FTE Equivalents
b. Write Off Analysis / Write Up/Down
Reasons
Financial Statements
a. Operational Statistics Analysis
• With FTE Equivalents
Profitability Analysis
a. Profitability
20
10
Overview
We have over 30 KPI statistics &
reports...way too many.
Choose the ones that are relevant to
your Firm and its culture.
“Grow” as time progresses.
21
B
I
A
Basic
Intermediate
Advanced
1
2
3
Asset Management
a. Unbilled Time / Aging
b. Unbilled Cost / Aging
c. A/R with Aging
4
5
6
Concept
22
11
Basic
Intermediate
Advanced
Dollars & Percents
Variance
a) Unbilled Time
Rippe & Kingston
Aging Periods
that are relevant
to your practice
Net Unbilled
after
Retainers or
Unapplied
Cash
23
Basic
b) Unbilled Cost
Intermediate
Advanced
Dollars & Percents
Variance
Rippe & Kingston
Aging Periods
that are relevant
to your practice
Net Unbilled
after
Retainers or
Unapplied
Cash
24
12
Basic
Intermediate
c) Accounts Receivable with Aging
Advanced
Dollars & Percents
Variance
Rippe & Kingston
Aging Periods
that are relevant
to your practice
It might be helpful to separately age the last bucket to see how old
the old A/R really is.
25
B
I
A
Basic
Intermediate
Advanced
1
2
3
4
Production Statistics
a. Key Statistics
5
6
Concept
26
13
Basic
Intermediate
Advanced
Discussion:
Cash
vs.
Accrual Reporting
Pros & Cons...
27
Basic
Intermediate
Advanced
a) Key Statistics
Rippe & Kingston
When individual statistics improve,
Firm statistics improve.
28
14
Basic
Intermediate
Advanced
Key Statistics Terminology:
YTD Billable Time Hours - the current billable hours (worked and entered) by the working
Attorney year to date.
YTD Billable Time $ @ BIM Value - the dollar value of the billable time (worked, entered, and
posted) year to date. The current billable hours are extended at the override rate if one exists
or an Attorney’s standard rate if an override does not exist.
Average Billable Rate - current billable dollars divided by current billable hours. It is the
average billable rate per hour for all time (worked and entered) year to date. This is also
referred to as Blended Rate.
YTD Total Time $ Billed - the time dollars billed to Clients on invoices year to date.
YTD Total Cost $ Billed - the cost dollars billed to Clients on invoices year to date.
29
Basic
Intermediate
Advanced
Key Statistics Terminology:
YTD Total Time and Cost $ Billed - the time dollars and the cost dollars billed to Clients on
invoices year to date.
Effective Billed Rate - the effective hourly rate for the time billed on the invoices to Clients. It is
arrived at by taking the billed amount divided by the relieved hours for the current invoices
sent to Clients. As an example, if a billing memo had 5 hours for a total of $1000 and is billed
for $800, this calculation would be an effective rate of $160 per hour.
YTD Write Up/Down Time $ @ BIM Value - the difference between the billed and relieved
amounts for the invoices sent to Clients year to date.
YTD Write Up/Down Time $ @ Std Value - the difference between the billed and relieved
amounts calculated at the Attorney's standard rate for the invoices sent to Clients year to date.
30
15
Basic
Intermediate
Advanced
Key Statistics Terminology:
Time Realization % @ BIM Value - the billed amount divided by the relieved amount for the
invoices sent to Clients.
YTD Write Up/Down Cost $ - difference between the billed costs and relieved costs for the
invoices sent to Clients year to date.
YTD Total Time and Cost $ Cash Receipts - the time dollars and the cost dollars received from
Clients on invoices year to date.
YTD Acct Rec Adj - Time $ - the amount of Accounts Receivable that was written off for time by
the Firm year to date on invoices previously rendered to Clients.
YTD Acct Rec Adj - Cost $ - the amount of Accounts Receivable that was written off for cost by
the Firm year to date on invoices previously rendered to Clients.
31
Basic
Intermediate
Advanced
Average Billable Rate / Blended Rate:
• Some engagements are won based on the blended rate. On others,
the blended rate is calculated after the fact and used to assess the
practice's ability to leverage staff. For example, if your firm billed a
client $75,000 in total fees for 600 billable hours, the blended rate
would be $125 an hour (total fees billed divided by the hours billed).
Sophisticated clients monitor this rate and often question why it is
increasing. All things being equal, maintaining a low blended rate
while delivering superior legal advice can generate competitive
advantages. (Source: BizActions)
32
16
Basic
Intermediate
Advanced
Billing Realization Rate:
• Often the recorded billable hours and the actual amount charged to
the client differ. Bills are written down for many reasons. Many law
firms neglect to manage this rate as it is typically calculated well
after the work has been completed. Whatever the realization
percentage rate is, chances are good that it can be improved by five
percent or more by determining the causes of the write-offs and
eliminating at least some of them. (Source: BizActions)
33
Basic
Intermediate
Advanced
a) Key Statistics
Key Statistics
Rippe & Kingston
Last 12 months
Last 12 years
Trend Analysis is important.
34
17
B
I
A
Basic
Intermediate
Advanced
1
2
3
4
Financial Statements
a. This year vs. last FS
5
6
Concept
Basic
a) This Year vs. Last
35
Intermediate
Advanced
Percent of Total
Income
Variance
($ and %)
100%
100%
100%
100%
25%
20%
31%
24%
8%
11%
7%
8%
10%
12%
8%
9%
1%
1%
.3%
.04%
5%
5%
7%
5%
7%
4%
8%
6%
7%
6%
9%
6%
.4%
.3%
1%
.4%
1%
.4%
1%
.3%
.3%
.3%
.0%
.3%
3%
4%
4%
4%
36
18
B
Basic
I
A
Intermediate
Advanced
Practice Development
a. Opened Files by Area of Law
- Matter
- Client
1
2
3
4
5
6
Concept
Basic
37
Intermediate
Advanced
a) Opened Files by Area of Law (by Year)
Rippe & Kingston
...using the Matter Open Date.
38
19
Basic
Intermediate
Advanced
a) Opened Files by Area of Law (by Month)
Rippe & Kingston
...using the Matter Open Date.
39
Basic
Intermediate
Advanced
a) Opened Files by Area of Law (by Year)
Rippe & Kingston
...using the Matter Open Date.
40
20
B
I
A
Basic
Intermediate
Advanced
1
Resource Management
a. Monthly Calendar
b. My Time
2
3
4
5
6
Concept
Basic
41
Intermediate
Advanced
a) Monthly Calendar
Rippe & Kingston
Timekeepers should
‘know’ their
expectations and be
reminded of them.
Time has to be worked to be billed and collected.
42
21
Intermediate
Basic
Advanced
b) My Time
Rippe & Kingston
Day
by Day
Accountability
Individual
Statistics
Budget
Actual
Trend
‘Picture’
Budget Actual $
Annual billable goals are an accumulation of daily billable goals.
43
B
I
A
Basic
Intermediate
Advanced
1
2
3
Asset Management
a. Credit Limit Reporting
b. Asset – Turn and Days
c. New Clients/Matters
4
5
6
44
22
Intermediate
Basic
Advanced
a) Credit Limit Reporting
Credit Limits
Unbilled
Time
Unbilled
Cost
Accounts
Receivable
ABC & Co.
1,000
1,000
B&B Travels
2,500
1,000
Carson, Inc.
6,000
Dyer Bros.
Client
Totals
Credit Limit
% of Credit
Limit
500
2500
7,000
36%
0
3500
7,000
50%
0
700
6,700
7,000
96%
1,000
500
0
1,500
10,000
15%
500
250
200
950
5,000
19%
A
B
C
E
F
(D/E)
Ellison & Ellison
D
(A+B+C)
Note: Monitor Clients at or above (e.g., 80%) of their limit).
Note: Requiring Originating Attorneys to think about a new Client’s ability to
pay by implementing credit limits is a “Best Practice” initiative.
45
Intermediate
Basic
Advanced
b) Asset - Turn
Inventory Turn Calculation
Annual Billable Time
Unbilled Time
Inventory
Inventory
Turn
Ashland, Joe
$269,000
$82,000
3.3
Baldwin, Bob
$337,600
$65,000
5.2
Brown, Ashley
$289,400
$51,000
5.7
Barley, Jonathan
$377,500
$32,200
11.7
$400,000
$ 63,000
6.3
$1,673,500
$293,200
Billing Attorney
Carlton, Marissa
Totals
A
B
5.7
C
(A/B)
Note: Monitor by Billing Attorney, Area of Law, and Client
46
23
Intermediate
Basic
Advanced
b) Asset - Days
Average Days in Inventory
Unbilled
Time $
Average Daily
Billable Time $
Average Days
in Inventory
Ashland, Joe
$82,000
$1,067
77
Baldwin, Bob
$65,000
$1,339
49
Brown, Ashley
$51,000
$1,148
44
Barley, Jonathan
$32,200
$1,498
22
Carlton, Marissa
$ 63,000
$1,587
40
Totals
$293,200
$6,641
44
A
B
C
(A/B)
Billing Attorney
B = Annual Billable Dollars / Working Days of Year (i.e., 252)
Note: Monitor by Billing Attorney, Area of Law, and Client
47
Intermediate
Basic
Advanced
b) Asset - Turn
Accounts Receivable Turn
Annual Fees Billed
Average A/R
A/R
Turn
Ashland, Joe
$259,950
$92,000
2.8
Baldwin, Bob
$338,000
$69,000
4.9
Brown, Ashley
$275,400
$52,500
5.3
Barley, Jonathan
$357,420
$35,200
10.2
$396,900
$ 70,000
5.7
$1,627,670
$318,700
5.1
Billing Attorney
Carlton, Marissa
Totals
A
B
C
(A/B)
Note: Monitor by Billing Attorney, Area of Law, and Client
48
24
Intermediate
Basic
Advanced
b) Asset - Days
Days in Accounts Receivable
A/R
Average Day
Fees Billed
Average Days
in AR
Ashland, Joe
$92,000
$1,032
89.2
Baldwin, Bob
$69,000
$1,341
51.4
Brown, Ashley
$52,500
$1,093
48.0
Barley, Jonathan
$35,200
$1,418
24.8
Carlton, Marissa
$ 70,000
$1,575
44.4
Totals
$318,700
$6,459
49.3
A
B
C
(A/B)
Billing Attorney
B = Fees Billed/Working Days of Year (i.e., 252)
Note: Monitor by Billing Attorney, Area of Law, and Client
49
Basic
Intermediate
Advanced
c) New Clients/Matters
Firm Investment / Asset
Management
...Of the new Clients opened in the last 365 days, are they
paying timely?
Rippe & Kingston
Train New Clients
50
25
I
B
Basic
Intermediate
A
Advanced
1
2
3
Production Statistics
a. Utilization / Capacity Analysis
b. Rate Assessment
c. Write Off Analysis / Gaps
4
5
6
51
Basic
Intermediate
Advanced
Utilization / Capacity Analysis:
• From almost the first day practicing law, attorneys focus on
utilization. Expressed as a percentage of total available hours to be
billed throughout the year, this metric is the first step in determining
performance. Most firms function on the basis that there are
anywhere from 1,800 to 2,300 billable hours a year. If a lawyer bills
1,700 hours, the utilization rate would range from 94.4 percent to
73.9 percent. (Source: BizAction)
52
26
Intermediate
Basic
Advanced
a) Utilization / Capacity Analysis
Capacity Analysis by Working Attorney
Billable Hours
(YTD)
Budget Hours
% of Budget
Ashland, Joe
1,422
1,800
79%
Baldwin, Bob
1,742
1,800
97%
Brown, Ashley
2,300
1,800
128%
Barley, Jonathan
2,100
1,800
117%
Carlton, Marissa
1,942
1,800
108%
9,506
9,000
106%
A
B
Working Attorney
Totals
C
(A/B)
Capacity
53
Intermediate
Basic
Advanced
a) Utilization / Capacity Analysis
Capacity Analysis by Practice Group
Billable Hours
(YTD)
Budget Hours
Tax
12,600
15,000
84%
Corporate
13,000
15,000
87%
Litigation
22,000
30,000
73%
Trust
5,100
6,000
85%
52,700
66,000
80%
A
B
Practice Group
Totals
Capacity %
C
(A/B)
Capacity
54
27
Basic
Intermediate
Advanced
b) Rate Assessment
Rippe & Kingston
Days elapsed between time
entry date and rate start date
55
Basic
Intermediate
Advanced
c) Write Off Analysis / Gaps
1. Write offs due to
Client rates less
than Firm Standard
rates
Rippe & Kingston
1
2. Write offs in the
billing process for
time
2
3. Write offs in the
billing process for
cost
4
3
4. Write offs due to
A/R adjustments
56
28
B
I
A
Basic
Intermediate
Advanced
1
2
3
4
Financial Statements
a. Budgets
b. Profit Plan
5
6
57
Basic
a) Budgets
Intermediate
Advanced
Budget versus Actual
Variance
($ and %)
19%
7%
8%
1%
5%
4%
6%
1%
.4%
.2%
4%
58
29
Intermediate
Basic
Advanced
b) Profit Plan
Budget
Actual
1,000,000
1,000,000
1,000,000
14,579,950
12,289,426
709,476
59
1
B
I
Basic
Intermediate
A
Advanced
Practice Development
a. Client Revenue by Year
b. Matter Revenue by Year
c. Cross-selling Report
d. Client/Matter Minding
2
3
4
5
6
60
30
Basic
Intermediate
Advanced
a) Client Revenue by Year
Rippe & Kingston
This year’s
revenue by
the Client
open date
61
Basic
Intermediate
Advanced
a) Client Revenue by Year
55%
63%
62
31
Basic
Intermediate
Advanced
b) Matter Revenue by Year
Rippe & Kingston
This year’s
revenue by
the Matter
open date
63
Basic
Intermediate
Advanced
b) Matter Revenue by Year
78%
68%
64
32
Basic
Advanced
Intermediate
c) Cross-selling Report
Fee Receipts
Practice
Group
Corporate
%
$
Litigation
%
$
Trust
%
$
%
$53,845.23 23.7 % $45,125.98 16.6% $70,425.15 21.1% $22,985.65
21.9%
$192,382.01
20.5%
Corporate $85,125.68 37.5% $101,020.67 37.3% $185,325.50 55.6% $38,489.45
36.6%
$409,961.30
43.8%
Litigation
$29,458.51 13.0% $79,698.25 29.4%
$18,145.78
17.3%
$144,560.86
15.4%
Trust
$58,654.28 25.8% $45,215.32 16.8% $60,259.67 18.1% $25,536.83
24.2%
$189,666.10
20.3%
Totals
$227,083.70 100.0% $271,060.22 100.0% $333,268.64 100.0% $105,157.71
100.0%
$936,570.27
100.0%
$17,258.32
5.2%
$
Totals
%
Tax
Originating
Attorney
Tax
$
Working
Attorney
65
Basic
Intermediate
Advanced
d) Client/Matter Minding
Clients that have not been contacted in the last 365 days
(evidenced by the lack of time entry)...
Rippe & Kingston
Last time posted date equals the last contact date.
66
33
B
I
A
Basic
Intermediate
Advanced
1
Resource Management
a. My Team
b. Cross-working Report
2
3
4
5
6
67
Basic
Intermediate
Advanced
a) My Team
Rippe & Kingston
When individual statistics improve, Firm statistics improve.
68
34
Basic
Advanced
Intermediate
a) My Team
Rippe & Kingston
69
Basic
Advanced
Intermediate
b) Cross-working Report
Billable Time
Practice
Group
Billing
Attorney
Tax
Corporate
Litigation
Trust
$
%
$
%
$
%
$
%
Tax
$53,845.23
23.7 %
$45,125.98
16.6%
$70,425.15
21.1%
$22,985.65
21.9%
Corporate
$85,125.68
37.5%
$121,020.67
44.6%
$135,325.50
40.6%
$38,489.45
36.6%
Litigation
$49,458.51
21.8%
$59,698.25
22.0%
$67,258.32
20.2%
$18,145.78
17.3%
Trust
$38,654.28
17.0%
$45,215.32
16.8%
$60,259.67
18.1%
$25,536.83
24.2%
Totals
$227,083.70 100.0%
$271,060.22 100.0%
$333,268.64
100.0%
$105,157.71
100.0%
Working
Attorney
70
35
Basic
Advanced
Intermediate
b) Cross-working Report
Write Ups/Downs
Tax
Practice
Group
Billing
Attorney
Corporate
$
Billing
Realization
%
Tax
$5,800.00
Corporate
Litigation
$
Billing
Realization
%
98.2 %
$5,525.98
$5,130.68
89.5%
Litigation
$4,4508.51
Trust
Totals / Avg
Trust
$
Billing
Realization
%
$
Billing
Realization %
89.6%
$1,425.15
89.1%
$985.65
90.9%
$1,000.67
92.6%
$3,325.50
102.0%
$3,469.45
96.6%
101.4%
$5,700.25
101.0%
$6,255.68
91.2%
$1,145.88
101.3%
$3,700.28
95.0%
$4,215.32
93.8%
$4,200.00
89.1%
$2,300.20
99.2%
$2,500.70
96.0%
$2,500.22
94.3%
$3,250.64
92.9%
$1,100.00
97.0%
Working
Attorney
71
B
I
A
Basic
Intermediate
Advanced
1
2
3
Asset Management
a. Operational Statistics Analysis
• With FTE Equivalents
4
5
6
72
36
Basic
Intermediate
Advanced
At an Advanced level, FTEs can become important...
Wikipedia defines FTE Equivalents as:
•
a unit that indicates the workload of an employed person in a way that makes
workloads comparable across various contexts. FTE is often used to measure a
worker's involvement in a project, or to track cost reductions in an organization. An
FTE of 1.0 means that the person is equivalent to a full-time worker, while an FTE of
0.5 signals that the worker is only half-time. (Wikipedia.org)
Provide comparability between periods as census
statistics grow or shrink.
73
Basic
Intermediate
Advanced
b) Operational Statistics Analysis
• With FTE Equivalents
Operational Statistics
Per Partner
Per Attorney
Per Timekeeper
Unbilled Time
Unbilled Cost
Account Receivable
74
37
B
I
A
Basic
Intermediate
Advanced
1
2
3
Production Statistics
a. Operational Statistics Analysis
• With FTE Equivalents
b. Write Off Analysis / Write Up/Down
Reasons
4
5
6
75
Basic
Advanced
Intermediate
a) Operational Statistics Analysis
• FTE Equivalents
Operational Statistics
Gross Fees
A. Per Partner
B. Per Attorney
C. Per Timekeeper
1. Billable Time Hours
2. Billable Time Dollars
3. Leverage
4. Average Billable Rate
5. Billings
6. Average Billed Rate
7. Write Up/Downs
8. Cash Receipts
9. A/R Adjustments
76
38
Basic
Intermediate
Advanced
a) Operational Statistics Analysis
• FTE Equivalents
1. Billable Time Hours – the current billable hours (worked and entered) by the
working Attorney.
2. Billable Time Dollars – the dollar value of the billable time (worked, entered,
and posted) year to date.
3. Leverage – Non-Partner billable dollars divided by total billable dollars.
4. Average Billable Rate – current billable dollars divided by current billable hours.
It is the average billable rate per hour for all time (worked and entered) year to
date. This is also referred to as Blended Rate.
5. Billings – the time dollars billed on invoices sent to Clients.
77
Basic
Intermediate
Advanced
a) Operational Statistics Analysis
• FTE Equivalents
5.
Average Billed Rate – dollars billed divided by the hours relieved amounts for
invoices sent to Clients.
6. Write Up/Downs – the difference between the billed and relieved amounts for
the invoices sent to Clients.
7. Cash Receipts – the time dollars and the cost dollars received from Clients on
invoices.
8. A/R Adjustments – the amount of Accounts Receivable that was written off for
time and cost by the Firm year to date on invoices previously rendered to
Clients.
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39
Basic
Advanced
Intermediate
b) Write Off Analysis / Write Up/Down Reasons
Rippe & Kingston
Write Up/Down Reason Codes
79
B
I
A
Basic
Intermediate
Advanced
1
2
3
4
5
Financial Statements
a. Operational Statistics Analysis
• With FTE Equivalents
6
80
40
Basic
Intermediate
Advanced
a) Operational Statistics Analysis
• With FTE Equivalents
Operational Statistics
Per Partner
Per Attorney
Per Timekeeper
Fee Revenue
Salaries (Atty/Timekeepers)
Support Staff
Gross Profit
Occupancy
Support Staff (Secretary and
others)
IT
Etc.
Total Operating Expenses
Net Operating Income
81
Basic
Intermediate
Advanced
Gross Margin:
• Expressed as a percentage, your firm's margin (profits after expenses
divided by fees collected) is an important measure of how billable
your firm is and an indication of how well it is managing expenses. A
margin of 35 percent to 40 percent is normally associated with a high
performing law firm that can collect fees while maintaining a low
cost structure. (Source: BizActions)
82
41
B
I
A
Basic
Intermediate
Advanced
1
2
3
4
5
Profitability Analysis
a. Profitability
6
Concept
83
Basic
Intermediate
Advanced
a) Profitability
What is it?
An Accounting allocation process, which measures the gross and
net contribution to the Firm’s profits of a given revenue stream.
An Accounting analysis, which calculates a series of direct and
indirect rates per timekeeper per hour allocated to a defined
revenue stream to measure gross and net contribution to Firm
profits.
84
42
Basic
Intermediate
Advanced
a) Profitability
A Systematic Approach for Measuring
the Profitability of the Firm…
• Identify Revenue
• Identify Direct Costs
• Identify Indirect/Overhead Costs
• Apply Direct and Indirect Cost to Revenue
85
Basic
Intermediate
Advanced
a) Profitability
Why use it?
• All Clients Contribute to Profitability
• All Attorneys Contribute to Profitability
• Create Better Informed Decision Makers
• Cost Structure & Guidelines
• Rate Structure & Guidelines
• Profitability Models
86
43
Basic
Advanced
Intermediate
a) Profitability
Who should use it?
• Law Firm Management
• Executive Committee
• Practice Group Leaders
• Billing Attorneys
87
Basic
Intermediate
Advanced
a) Profitability
Where should it be used?
Measurement of Profitability of Revenue:
• Products
• Clients
• Attorneys
(what we produce)
(who buys it)
(who sells it)
(who manages it)
(who creates it)
88
44
Basic
Intermediate
Advanced
a) Profitability
INCOME STATEMENT
FEE INCOME
PERSONNEL EXPENSES (Direct Cost)
OVERHEAD (Indirect Cost)
NET PROFIT
89
Basic
Intermediate
Advanced
a) Profitability
Firm
Per Invoice
Per Time Entry
Fee Income
Revenue
Revenue
Direct Cost
Direct Cost
Direct Cost
Indirect Cost
Indirect Cost
Indirect Cost
Net Profit
Net Profit
Net Profit
90
45
Basic
Advanced
Intermediate
a) Profitability
Revenue Costing Formula
• Client Invoices
• Time Entries
• Working Timekeepers
• Direct Cost
• Indirect/Overhead Cost
• Revenue – Direct Cost = Gross Profit
• Gross Profit – Indirect/OH Cost = Net Profit
91
Basic
Intermediate
Advanced
a) Profitability
Identify Direct Costs/Timekeeper
92
46
Basic
Intermediate
Advanced
a) Profitability
Identify/Isolate Direct Expenses
• Salary
• Bonus
• Taxes
• Medical
• Benefits
• Parking
93
Basic
Intermediate
Advanced
a) Profitability
Indirect Costs
Allocation of all Other Firm Expenses
94
47
Basic
Intermediate
Advanced
a) Profitability
Rippe & Kingston
95
Basic
Intermediate
Advanced
REPORTING RESULTS
• Firm
• Office
• Department
• Areas of Law
• Client
• Client/Matter
• Originating Attorney
• Billing Attorney
• Responsible Attorney
• Working Attorney
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48
Summary Page
We have over 30 KPI statistics & reports...way too many.
Choose the ones that are relevant to your Firm and its culture.
“Grow” as time progresses.
THANK YOU!
97
THINK BIG!!!
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