10 KPIs Every Law Firm Managing Partner Should Track to Boost Profitability
For law firm managing partners, understanding and improving profitability begins with tracking the right metrics. The adage “what gets measured gets improved” is particularly true in the legal industry, where efficiency and profitability are closely tied to data. By focusing on key performance indicators (KPIs), managing partners can gain valuable insights into their firm’s financial health, operational efficiency, and growth potential.
Here are 10 essential KPIs every law firm managing partner should track to increase profitability.
1. Utilization by Billable Hours
Utilization measures the percentage of available time that attorneys and other billers spend on client work. Tracking billable hours utilization helps identify whether your team is maximizing their time effectively.
Why It Matters:
• Low utilization may indicate inefficiencies, lack of proper workload distribution, or excessive time spent on non-billable tasks.
Target:
• Aim for a utilization rate of 80-90% for billers, depending on the firm’s practice area and billing model.
2. Utilization by Dollars
Utilization by dollars measures the monetary value of billable hours worked compared to the total value of hours available.
Why It Matters:
• This KPI evaluates the financial impact of how time is spent, giving a clearer picture of whether resources are generating their intended value.
3. Realization Rate
Realization rate measures the percentage of billed fees that are collected as revenue.
Why It Matters:
• A low realization rate indicates issues with billing practices, discounting, or collections, all of which directly impact profitability.
Target:
• Strive for a realization rate above 90%.
4. Fixed Expenses Divided by the Number of Full-Time Billers
This metric calculates how much of the firm’s fixed costs (e.g., rent, salaries, insurance) are supported by each full-time biller.
Why It Matters:
• It highlights whether your firm is operating efficiently or carrying too much overhead relative to its workforce.
5. Biller ROI (Non-Partner Billings vs. Their Overhead Cost)
Biller ROI measures the revenue generated by non-partner billers compared to the costs of employing them.
Why It Matters:
• A clear picture of individual ROI helps identify high-performing billers and areas where resources may be underperforming.
Target:
• A healthy ROI for billers typically exceeds 3:1 (three dollars billed for every dollar of overhead).
6. Leverage Ratio: Non-Partner Revenue Divided by Total Revenue
This ratio assesses the contribution of non-partner billers to the firm’s overall revenue.
Why It Matters:
• High leverage ratios indicate that the firm is maximizing its profitability by effectively utilizing lower-cost resources.
• It also helps ensure that partners aren’t overburdened with billable work, allowing them to focus on strategic initiatives.
7. Billing Effective Rates
This metric compares the revenue generated per hour of work to the standard hourly rate.
Why It Matters:
• It reveals how much the firm is truly earning relative to the time billed, accounting for discounts, write-offs, and realization rates.
• A low billing effective rate may signal the need for tighter billing practices or adjustments to pricing.
8. A/Rs Under 90 Days Divided by Total A/Rs
This KPI measures the percentage of accounts receivable (A/Rs) collected within 90 days of invoicing.
Why It Matters:
• A high percentage indicates strong cash flow and effective collections processes.
• Delays in collecting fees can disrupt the firm’s ability to meet financial obligations.
Target:
• Aim for at least 85% of A/Rs to fall under 90 days.
9. A/Rs Under 90 Days Divided by Total Monthly Expenses
This metric measures whether recent collections can cover the firm’s monthly expenses.
Why It Matters:
• Ensures the firm has sufficient cash flow to operate without relying on reserves or lines of credit.
Target:
• This ratio should ideally exceed 1:1, meaning collections are greater than monthly expenses.
10. Owner Compensation Divided by Total Revenue
This KPI evaluates how much of the firm’s total revenue goes toward partner compensation.
Why It Matters:
• Tracking this metric ensures that owner compensation is sustainable and aligns with the firm’s overall financial health.
• A high ratio could indicate excessive partner draws at the expense of reinvestment or long-term stability.
Target:
• Aim for owner compensation to fall between 25–35% of total revenue, depending on the firm’s size and profitability.
How to Track These KPIs
Leverage Technology
Most law firm practice management software—such as Clio, or MyCase —includes robust reporting tools to automate KPI tracking. Use these platforms to generate dashboards and reports, saving time and reducing errors.
Start Simple if Needed
If your firm is not yet ready for specialized software, you can track these metrics using a well-organized Excel or Google Sheets template. The key is consistency—regularly update your data and analyze it to identify trends.
Why KPIs Matter
By measuring and monitoring these metrics, managing partners gain actionable insights into their firm’s performance. Tracking KPIs provides the data needed to make informed decisions, identify inefficiencies, and create strategies that drive profitability.
Need Help Setting Up Metrics?
Establishing and monitoring these KPIs may seem overwhelming at first, but it doesn’t have to be. At ING Collaborations, we specialize in helping law firms develop and implement the right metrics to boost efficiency, profitability, and growth. Whether you’re just starting out or looking to refine your reporting, we’re here to help.
Contact us today to learn how we can support your firm’s success.