I am the newly elected managing partner in our twelve-attorney firm in Chicago, Illinois. Our firm is a business transaction firm that was started by the present four partners ten years ago. While we have an office manager that does the bookkeeping, prior to this year all four partners as a group managed the firm. This year the firm decided to create the managing partner position. Since this is new to me I am trying to learn all that I can about law firm management. My first priority is to help the firm improve profitability and I would like to know what the key operating metrics and statistics are that I should be monitoring. You suggestions will be appreciated.
Law firm operating statistics represent an important management tool. They highlight superior performances and they flag below average performances. They provide law firm management with the key information needed to manage the firm’s business. In addition to measures such as firm fee revenue collections, firm profit/net income, profit per equity owner, billable hours, fee revenue collected per attorney, operating statistics found in law firm management reports typically include information on:
- Utilization of personnel – billable hours
- Realization of time charges – billing and collection realization
- Speed of billing and collection – accounts receivable aging reports
- Compensation costs – income statement and payroll reports
- Operating expenses, and – income statement
- Partner leverage – ratio of equity partners to other attorneys
The first three statistics represent factors that relate to earning the firm’s revenue. Responsibility for earning the firm’s revenue rests with the firm’s partners. Consequently, it is important to assign this responsibility to specific partners – typically the responsible/billing attorney.
In recognition of the assigned responsible attorney concept, many firms choose to present revenue-related operating statistics reports in a format that focuses on each partner’s responsibility. This gives the management group the ability to access each partner’s “business” performance.
John W. Olmstead, MBA, Ph.D, CMC