We have come full circle in our discussion over this series of blog posts on the best use of key performance indicators (KPIs) by returning to client metrics, this time with an emphasis on client development KPIs. Often attorneys do not believe that prospecting and marketing to potential clients is the same as sales and marketing efforts that occur outside the legal profession. Other than important ethical advertising considerations that should not be ignored, there is much to be learned from business development practices outside the law.
In the series’ first post, we discussed a KPI survey of 62 firms, where 36 measured hours, collections and billings, but only 25% of those firms tracked the number of new clients. New clients bring in new revenue, so collecting that data allows you to best evaluate your marketing and business development efforts. In addition, only about one-third of the firms tracked pipeline value per attorney and cost of client acquisition. There is room for more KPIs within legal, and that’s possible without having to adopt expensive technologies. Many of the newer KPIs discussed here do not require software beyond Excel. In our final blog of the series we will examine creating and tracking some client development metrics, including the potential client pipeline.
There is room for more KPIs within legal, and that’s possible without having to adopt expensive technologies.
First, it is important to take a holistic approach to the metrics because KPIs are interdependent within an overall framework that follows the workflow and processes within a firm. In the same survey mentioned above, only six of the 26 firms that used KPIs for measurement other than traditional utilization, used more than four KPIs. Therefore, while a pipeline KPI is important, there are other measures such as client conversion and referral rates that monitor client development efforts. In a similar fashion, client development KPIs are not the sole client metrics. Client experience and the cost of client acquisition KPIs should also be tracked to optimize use of limited firm resources. Measuring the effort to attract new clients and their value to the firm is fundamental to profitability. Also, it’s risky to focus only on one KPI area.
We look to the business world for an example of using a sales pipeline for monitoring the amount of incoming client business to ensure that overall firm revenue targets or budgets will be met. An overall caveat is that creating and maintaining a client pipeline is more of an art than a science because of the estimates that must be made.
Below is an example of a family law firm pipeline from my book, Small Law Firm KPIs: How to Measure Your Way to Greater Profits. Note that is built up using Excel. Some customer relationship management (CRM) systems produce a pipeline, but it’s helpful to understand the basics. Using Client 6 to illustrate: The $ Value is the projected fees to be earned which are set at $25,000. The Go represents the likelihood that Client 6 will actually go forward with the matter and the Get is your chances of getting the work. The Adjusted Value is the $25,000 multiplied by the 25% Go and the 100% Get.
While the math for Adjusted Value is simple, arriving at $Value, Go, and Get can be challenging. If you do not have a discrete menu of different services, flat fee packages, or an estimate of how much revenue each client will bring in, do your best to make some estimates based past history. For Go and Get, limit the options to 25%, 50%, 75% and 100%. Think of Get in terms of the number of others competing for the work. If the competition is between two firms, but you think the competitor has a better chance, then use 25%; or, if it’s a draw between the two firms, 50%. Again, these are estimates. The objective is to compare the Adjusted Value to your budgeted revenue for the upcoming period to see if you need to adjust your client development efforts.
It bears repeating that you cannot look at just one measure, even within a KPI category like client development. Tracking metrics such as which potential clients retain your firm in comparison to the total clients that you are prospecting will give you information to refine your pipeline and also direct your scarce marketing resources.
Lastly, KPIs are not limited to small law firms nor to just the United States. The small principles and framework can be applied to all sizes of firms everywhere.