Linda Artesani explains why legal accountants should track three core KPIs: utilization rate (billable hours divided by available hours), realization rate (collected revenue divided by billed revenue), and attorney productivity. These metrics let bookkeepers move beyond basic statements and become strategic advisors who help law firms improve profitability.
Chapters
Hi there, Linda Artesani from the Accountants Law Lab. This week we're going to discuss how to track KPIs for lawyers. So basically we're gonna dive into some good deep advisory skills for legal accountants. And you may be sitting as a bookkeeper going, why do I really need to know this? Do I really need to track this? Isn't it just okay to give them the financials, profit and loss, balance sheet, and call it a day? Call it a day. Well, it really isn't. If you want to set the bar high and put yourself above the other bookkeepers out there, and I can tell you firsthand, I just actually had a client come to me with a quote from QuickBooks Live doing the bookkeeping work for $200 a month. And he said, why should I pay you at that? I think, I think I charged him. I think my cost was 3 times that. And he's like, why should I pay you for that? Why, why is your service different than mine? So he forwarded me their quote. First of all, their quote was really confusing. And it was basically just after-the-fact cash basis bookkeeping. There was nothing more than that in it. And he actually had to do the bank, bank download. So he had to put the transactions in himself, which most attorneys don't want to do. I also had— and, and, and, you know, I'm not saying that that's not a bad service. It's good for somebody who's just starting out. Perhaps you can get an start out on the right foot. We just can't do it for that price because we chart— we have a different level of service. And that level service is more like comparing apples to oranges, which is basically what I told them when I met with them. I've seen that with, also with Bench. Bench also specializes in law firm books, which QuickBooks Live doesn't, but Bench does, and it's totally different. So Bench has some familiarity to it. But when you look at the transaction posts, postings, I mean, I had a client, it was a mess. I had to go back in and clean it up. I'm sure QuickBooks Live is better than that, but I am sure just as well as— and they said they'd go back in and fix whatever the client didn't put in properly. But that's a lot of fixing, and I don't know why anybody would want to hire a firm where they're going to do all the work themselves and then they're— the accounting team behind it or the bookkeeping service is going to go behind and clean up your messes. It just doesn't make sense to me, not logically. So you're here at the Accountants Law Lab site, and I'm going to assume that you want to up— amplify your practice. You want to uplevel it. So one of the ways you can do that is to measure some KPIs for your, your, your attorney-client. And I think one of the ones that they ask, ask for the most is production. So attorney production, they have multiple attorneys working on staff and they wanna know which ones are more productive than the others. We could also get into the accounts receivable side, which I will do in a future, uh, article where we'll explain a little bit where you can really help a client there as well. But this is more about the billable hour and doing some metrics and some calculations that will really help them understand the books better. So there's a couple of ways you can do that. So you can look at the utilization rate, and the utilization rate is the percentage of time that an attorney spends on billable hours compared to their total hours worked. So you have an 8-hour day, which most attorneys work way more than that. And if you have that 8-hour day, there's lunch. There could be some meetings. There could be staff meetings. Those aren't billable. So you have to figure out the billable hour. And really, you're gonna look at the total billable hours. You're gonna divide it by the available hours. That's gonna give you that utilization rate. And then you're gonna multiply it by 100%. So that'll give you the percentage. You also wanna determine the realization rate. So I always call this getting real with your client. You want to be able to show them exactly what the percentage of billable hours that you collect. So it's okay. You can have firms that bill, bill, bill, bill, bill. But if their AR is— they've got this big open AR balance and they never really received that money, it's not as true a number. So by using utilization, but realization rate will give you that accurate figure that will show you what is actually collected. So you're gonna get total billable hours and you're gonna divide it by the total billed hours., and you're going to get the correct calculation there where you've actually money that you've collected. So it's, it's a little bit more work. A lot of the programs like LeanLaw do this calculation for you. So if the attorney is using an outside, outside billing system like Clio or LeanLaw, you should be able to get those figures right from there. If they're not, you're going to have to track, see where they're time tracking to be able to calculate those things. And then to get to the attorney productivity rate, which is what a lot of attorneys really want to know, they want to know how their attorneys are doing. It's a little more work. You're going to actually take that utilization rate and you're going to multiply it by the realization rate. And that's going to give you the productivity rate. And that's probably the number that they want to know because they'll base bonuses on that. They might base some of the, if someone's going to get a raise or move into another position, Some of those things are going to be important to the partners to know what the productivity rate is. A lot of them probably will tell you, I knew that. I could tell you that gut feeling. I knew that that's what this attorney wasn't pulling his or her weight, or this one was. They'll probably tell you that, but to see the figures right in front of them, it's really eye-opening, I think, a lot of times. We do a lot of this work inside of Reach Reporting, so you can extract the data out of QuickBooks or extract it out of a bill, a time and billing software and do the math there. You can use a good old spreadsheet too if you want, or a Google Sheet, doesn't really matter. But you wanna remember that by measuring KPIs, lawyer KPIs, and tracking, it all comes down to tracking the metrics. You have to have the metrics. You have to have a formula for tracking these things in order to be able to calculate. If you're sitting here going, this is what I wanna do, and you never had a way or a method to track it, you have to start doing that first and then have those good conversations with the client. That's what we're here for, to assist them and help them grow their firm and grow it in a profitable way. And I think that is something that if you have these conversations, you can help them strategize their profitability and maybe help them figure out a way to grow their business in a smart way. And that's what we really wanna do. We wanna be there, be there to help them. That's probably why you got into the business of being a bookkeeper in the first place. So on that note, I hope this was helpful. Article attached is really more detail-oriented. It'll have the formulas there for you as well.
