View from the Law Firm Financial Performance Forum: New Metrics Offer a New Look

Topics: Data Analytics, Law Firm Profitability, Law Firms, Legal Innovation, Peer Monitor, Thomson Reuters

Jennifer Roberts

NEW YORK — At last week’s Law Firm Financial Performance Forum, I presented on the topic of performance metrics for the legal market. Some of the metrics were all too familiar — realization, profit per equity partners (PPEP), revenue and expenses to name a few.

However, in an attempt to broaden the conversation some new metrics were pulled in, specifically looking to define the entire legal market and its subsets, instead of just using the traditional look at the legal industry done through the eyes of the law firm. There will be plenty more to come via the Legal Executive Institute on identifying the size of the legal market and market share for the various segments (AmLaw 100, Second 100 and Mid-size) as well as new competitors. In the meantime, it is worth mentioning a few critiques of the current metrics heard from the panelists at the Forum.

  • Demand — As demand is currently measured by the legal industry in billable time it is inherently problematic, according to several panelists. It is not talking about what clients are demanding but rather what lawyers are doing.
  • Productivity — Dividing demand (measured by the billable hour) by the number of lawyers as it is traditionally done within the market, is not a real measure of how productive a lawyer is but instead measures the firm’s utilization or the nature of the way the work is done.
  • Realization — As a proxy for profitability, realization is no longer a good metric. We need to find new ways to measure profitability and firm improvement as these phenomenons do not happen in isolation. Additionally, the noticeable trend towards fixed fees calls this metric as well as other traditional metrics (like demand) into question.
  • Broad market metrics — While broad market metrics matter and it is important to understand what is happening in the overall market, you should pay closer attention to your specific niche within the market as this will better inform you on what is happening that is more relevant to your firm.

Aside from the critiques of the traditional metrics we have come to love there was a call to action when it came to these new metrics. The panel continuously brought up client behavior as a critical metric to track.

Bill Henderson, of Indiana University Maurer School of Law and Co-Chair of the Forum, suggested measuring client satisfaction through a net promote-type rating. Many industries (including alternative service providers) are already using this method. After a client engagement, for example, many phone or cable provider companies will ask how likely a customer is to recommend this service to a friend. A high net promote score not only means good press but it also implies a happy client.

And a happy client equates to exceptional service which is important in this competitive landscape.