Survey Your Clients To Improve Performance

When talking about improving performance, we talk about measurement.  Measuring productivity, rate, realization, margin and leverage.  But what about measuring the satisfaction of your clients?  After all, without their satisfaction, all of your numbers decrease.

Internal “upward reviews” are good to determine how well management is doing internally.  Client satisfaction reviews are good to determine how well your attorneys are doing in providing excellent service to the firm’s clients.

Tom Collins wrote a good sample client survey form that posted on More Partner Income in 2005.  It’s freely distributable, so I have posted a copy of it that you can download by clicking here.

Tracking Billing Cycle Metrics

The law firm business model is based on the measurement of 5 key profit drivers:  Rate, Realization, Utilization, Leverage, and Margin.  I would add another metric:  Cash flow.  You can really see a return on your investment in time and effort if you have a lot of time in WIP (work in process) and AR (accounts receivable).

The critical metrics that affect cash flow are the average days to bill, average days to collect (and by extension the sum of both to create the total billing cycle) and the average days in AR. Using a rolling 12 month period will give you an annual baseline, but you can also track it monthly. 

In the graph below, The variables are the total fees unbilled, total fees billed, and total fees collected over a 12 month period.  Knowing these numbers, you can calculate the total receivables outstanding during this time span, the average monthly and daily fees unbilled, billed and paid and your average days to bill, collect and days outstanding.

These metrics are critical for measuring your efficiency both at billing your work and collecting your fees.  If these numbers are high, then a review of your processes is due. Click on the graphic above to download and test with your own numbers.

Simplifying the Law Firm Business Model

The law firm business model, as defined by David Maister, is made up of the following equation:

1. Leverage
2. Rate
3. Productivity (Utilization)
4. Realization
5. Margin

If you are not tracking these profit drivers, it doesn’t matter how many reports you are thumbing through – they won’t measure the keys to per-partner profits and are thus, as far as profitability is concerned, irrelevant. The good news is that it doesn’t take much to track these drivers.  You can derive a simplified financial statement by just plugging in your numbers.  The below graph shows how tracking these key indicators can help you see exactly what drives your firm’s profits.  To download and plug in your own numbers, click on the graph.

 

I will be going over each of the drivers in more detail over the next several weeks.