Regardless of what you believe, running a highly profitable law firm that produces amazing profits year after year has as little to do with the quality of the attorneys in the firm as it does the quality of their legal services!

Over the years I have noticed that most highly profitable law firms all have at least one characteristic in common:

They focus on key metrics that track critical areas of the firm. We call them Key Performance Indicators (KPIs) and they are the numbers that make your law firm run! They are a "report card" for your law firm and determine whether you are on track to achieve your goals or if it's time to retool and refocus your efforts.

Measuring KPIs is not new. Companies in most industries and professions have been using them for decades as a yardstick to track and measure their performance.

Unfortunately, this is not the case for law firms. In my work with law firms often I find one of the biggest factors holding them back is that they do not know what numbers to measure. The other piece of the puzzle is the absence of industry wide benchmarks to know if their results are good or bad.

Even worse is when the legal industry publishes misleading benchmarks, such as "revenues per partner," which the Am Law 200 perpetuates every year with their list of the largest law firms in the country.

One fundamental problem with this so-called legal industry benchmark is that each law firm varies significantly in terms of how many staff (secretaries, paralegals, file clerks, and associates) supports each partner. In one firm the partner may only have two staff people, while in another there may be six or seven.

As you can imagine, the number of support staff per partner significantly impacts the actual profitability of the firm.

Another major problem is that the number is skewed towards larger law firms. The firm ranked first on the list is the one with the highest revenue amount per partner.

A solo practitioner can be very profitable for the owner making half a million per year with two low level staff members. However, partners in large law firms must generate hundreds of thousands or even millions of dollars of revenue per partner every year simply to support their massive overhead.

As you can see, metrics matter and this highly touted metric completely misleads attorneys into looking at bad data.

Without a clear understanding of what metrics to measure and how to measure them, it is very easy to jump to the wrong conclusions about what's happening in your law firm.

When cash flow is low, without KPIs guiding the firm's decision making, the temptation will be to just keep reducing expenses, when that may be precisely the wrong thing to do!

In addition, if you are not able to compile your numbers on a consistent basis and accurately compare them month over month, quarter over quarter, and year over year, then your data will lack both value and credibility, even if you can find an external standard to benchmark against.

To be useful in your decision-making, KPIs must be:  

• clearly defined  
• precisely measured  
• accurately interpreted,  
• and appropriately acted upon.

3 Major Steps To Measure Your KPIs

Before getting into what the critical KPIs you need to track are, you first need to implement the following three steps.

1. Identify what data needs to be collected. Partners need to determine what data is most important, will allow them to make the right assumptions and will lead them to make the correct decisions. Bad data leads to worse decisions.