Key learnings from the last three years: Tracking firm success
Welcome to this month's article of Let’s Be Frank, a monthly newsletter series hosted on LinkedIn and authored by our founder Digby. If you are interested in following along pop over to the Let’s Be Frank LinkedIn page here and hit the subscribe button to have these articles sent straight to your inbox.
Let’s Be Frank Mini-Series: Part 3
Welcome to the third article in my Let’s Be Frank mini-series on key learnings from the last three years. For this edition, I want to share how important data collection has been for us in informing business decisions and tracking firm success without hourly billing.
How do we collect the data?
Making the switch away from hourly billing, for us, did not mean that we stopped timekeeping. Timekeeping has been an essential data point for measuring our success and informing business decisions at our firm.
When it comes to timekeeping, you would think that there would be a lot of consensus on this topic. But it turns out that for many, the idea of tracking time is one of the primary motivations for moving away from billing by the hour. Essentially, timekeeping is considered drudgery, which is to be avoided. Check out my Burn the Timesheets? article for more on this subject.
This theory is, in large part, based on the premise that if you track time, you will resort to it as a way of determining the fair fee, rather than be truly value-based in your approach and base your fee only on the value the client receives. I agree with this point and it is clearly one of the challenges if you keep tracking time and you bill based on value delivered to clients. HOWEVER, I want to make decisions influenced heavily by what the data says. Your intuition (read in experience) is important in the process, but knowing the data will facilitate good decisions for the firm.
We send out many, many bills each month and this covers a variety of project types and a variety of individuals working on those projects. Many of these individuals are at the beginning of their careers, so there is a lot of learning naturally happening.
The most significant cost for each project is the salaries devoted to getting it done. You could create a unique system to track this cost, which would equate to an allocation of salary and overhead expended on this project. We chose to stick with recording time and market hourly rates to achieve this tracking. Choosing to stick with timekeeping was easier than adding in a brand new system, as recording time (although difficult for some) is well ingrained in the legal system and works to get us the data we want.
So what can you learn from this data?
I want to know the cost of producing each project and organize them into useful categories to make decisions for the future. Some of the key learnings from this data include the following:
1. Efficiency
In the beginning, we wanted to know, on a granular basis, where we were efficient and not. To get started, we spent about six months taking our four practice areas and segregating them into project types (about 40 at the onset). As an example, an incorporation is a different project type from drafting a shareholder agreement.
The first thing we did was look at all outliers – projects billed at more than a certain amount at either a realization rate (billings divided by time cost) of over 110% or under 80%. We chose those thresholds as we wanted to ensure they were somewhat significant files, and we felt that between 80% and 110% was “normal”. After all, the overall legal average is somewhere below 90%.
We had everyone that worked on an outlier file debrief at the end of the month, which was organized by management and then fed back to the firm. This worked well as we learned (as an entire firm) about which types of projects were handled efficiently (or not).
We found that “resource allocation” was important. The more lawyer time vs. paralegal time, the less efficient we tended to be.
The outlier process lasted for about a year, at which time we felt we had learned what we could from that particular data point.
2. What type of work is good for the firm?
We regularly share the realization rates for project types that are responsible for significant billings with the firm at our monthly staff meeting. This helps us learn which type of work we do efficiently, and focuses us on getting more of that type of work.
The converse is, of course, true. This process has also resulted in a “learn, recalibrate, action – repeat over and over” culture within our firm.
3. Key clients and internal data
When we added legal tech to our pricing system by integrating AltFee, we gained access to a lot more data (generated by the Software) for us to analyze. For example, we can look at “projects priced” (which indicates where we are busy working), which clients generate our billings, and, our learnings (by the number of updates to our guidelines) – a snapshot of whether we are keeping to our culture of continuous improvement.
In writing this article, I realize how big this topic is for us. There is so much more going on with data analysis in our firm, but I hope this gives you just a glimpse at what embracing data can do for you.
Please feel free to comment if you have found a particular type of data helpful to your business.
Until next time,
