Like any business, the success of your law firm depends on its ability to generate a significant profit. Contrary to popular belief, this goes beyond just attracting high-profile clients or winning big cases. Here’s why this aspect of your business matters and eight law firm profitability metrics you can use to track and boost your overall results. 

As a law firm owner or managing partner, one of your goals is undoubtedly to deliver high-quality legal services. But, at its core, your law firm is still a business. Whether you’re tracking billing, taxes, or overhead expenses, you must pay attention to legal practice analytics metrics and what they mean for your profitability. 

How do you know if you’re in the red or black? Are you hitting your financial goals for the year or quarter? Here’s why choosing and using profitability metrics are critical for your law firm and 15 key performance indicators you can use to gain insights into your business performance.

Why profitability metrics matter for your law firm

Everyone in the legal space understands that profitability is essential to growing and sustaining a business. But, not everyone knows how to create benchmarks and track the right key performance indicators (KPIs) that will help their law firm succeed. 

There must be a balance between analyzing the metrics that pertain to your firm’s financial aspects, like revenue and costs, and those tied to other aspects, such as efficiency and client satisfaction. A combination of these KPIs can put your law firm on the pathway to financial success. 

Key traditional metrics

If you want to know how to calculate law firm profitability, there are many options. Analyzing your financials is a critical first step that involves reviewing some key traditional metrics. While the following should be on your list, each has a few limitations.

1. Revenue

Revenue is simply how much money your firm brings in each year, usually as a percentage of settlements or verdicts. This figure is before expenses are deducted and does not consider other factors like efficiency or client satisfaction. 

2. Profit margin

Your law firm’s profit margin is determined by dividing its net income by its revenue. The result is a percentage reflecting the firm’s overall profits, with a higher percentage signifying greater profitability. Profit margins, however, only give a high-level view of a firm’s results. 

Client-centric profitability metrics

Client-centric metrics are another important measure of profitability, showcasing how well your firm performs across numerous core areas.

Client Acquisition

Attracting new clients to your law firm is a key component of maintaining its viability. The following metrics spotlight your firm’s track record for converting new leads.

3. Lead conversion rate

When digital marketing is done correctly, your website should attract leads and convert them into client intake. Your lead conversion rate tells you how well you are doing this. According to LocaliQ, the average conversion rate for personal injury lawyers is 5.45%. If you can do better than that, you’re on the right track. 

Several ways PI law firms can optimize this and other client acquisition metrics include:

• Implement marketing campaign tracking to measure lead conversion rates.
• Refine marketing messages to target ideal clients.

4. Cost per client acquisition

One of the primary ways lawyers spend time is on client acquisition. The cost per acquisition (CAC) is the cost and time spent on marketing, ads, and networking to sign a new client. Obviously, spending less per acquisition is better, but marketing is a must in a highly competitive industry like personal injury law. 

LocaliQ also reports that the cost per lead for PI firms is $160, which means this type of firm spends $16,000 to generate 100 leads and 5 clients. In this case, the CAC is $3,200. This figure alone might seem high. But, when your firm is efficiently settling cases and managing its costs, spending $3,200 to get a new PI client isn’t an outrageous figure.

Case handling efficiency

It may sound obvious, but managing your law firm efficiently plays a significant role in your profitability. For example, faster case resolution reduces overhead costs and allows time and capacity for more clients. These metrics focus on case-handling efficiency.

5. Average case resolution time and case management costs

Average case resolution time is the typical time it takes your attorneys or legal team to resolve a personal injury matter from start to finish. And case management costs refer to the expenses and hours spent obtaining a successful case outcome. These figures will vary depending on the complexity of the matter. 

According to a study, the average personal injury case settlement time is 11.2 months, with a resolution of 11.5 months if the attorney has to file a lawsuit. Of course, more complex cases can take much longer. The longer it takes to resolve a personal injury matter, the higher the case management costs will be and the lower the firm’s profits. Tracking this figure can provide valuable insight into how efficiently certain attorneys perform compared to others. 

6. New and closed matters per month

Part of your law firm’s goal-setting process should be determining how many new matters you’d like to take on each month. This would be your benchmark figure, allowing your firm to forecast potential revenue streams, estimate future income, manage cash flow, and make more informed financial decisions. By using a legal matter management system, you can instantly determine how many matters your firm and each attorney have opened over any specified period. 

There’s likely plenty of pressure to tie up loose ends on legal cases, get money due in your client’s pockets, and collect any legal fees for a successful conclusion. Just as you would track open matters, your firm should gauge its efficiency in closing legal matters each month and transferring money to its bottom-line results. The same practice management tools can provide this data seamlessly. 

7. Stalled matters/bucket age

A stalled matters metric helps your law firm identify when a case isn’t progressing, such as one having no movement in 60 or 90 days. On the other hand, bucket age tells you precisely how long a case has held a particular status, such as “discovery.” These metrics can help with the proper allocation of support and resources. 

One way your firm can operate more efficiently and reduce this metric is by using clear communication protocols to avoid delays. For example, PI teams can work together to ensure the discovery process gets completed within a certain period, such as 30-60 days.

8. Task completion rate

Task completion rate reveals the number of tasks an attorney, department, or firm completes out of the total tasks assigned in a given period, such as a month or quarter. This provides insight into efficiency, which can help your firm process cases faster and create capacity for more clients.

One way PI law firms can optimize these types of metrics is by effectively delegating tasks to optimize lawyer time. Another is by using personal injury case management software to streamline processes. 

Combine law firm profitability metrics with CloudLex

Now that you understand why you need to track law firm profitability and which metrics to focus on, how can you get the job done efficiently? Unless you want to spend all your time crunching numbers, your firm needs a solution that automates part of this process.

CloudLex is the ideal solution for personal injury law firms looking for workflow task management and ways to streamline practice operations. As an all-in-one personal injury case management software solution, CloudLex can seamlessly handle your personal injury cases and collect the data you need to perform detailed law firm profitability analysis. Contact us today to request a demo and learn more about what CloudLex can do for you.