In this video, Linda Artesani of Artesani Bookkeeping explains the realization rate—a key profitability metric for law firms—and why many firms overlook it. She contrasts two calculation methods, advocating for the collected‑rate approach (collected ÷ invoiced) as the most accurate picture of cash flow, rather than the billed‑vs‑tracked method. Artesani outlines practical steps to boost realization to the target 90‑95% range: set clear fee expectations with clients up front, hand‑select financially reliable clients, invoice every billable hour, and consistently track time using tools like LeanLaw. She notes that improving this ratio directly raises firm revenue and profitability, especially as firms scale and monitor individual attorney performance. The video concludes with invitations to read a detailed blog post, engage in higher‑level advisory services, and join her Facebook community (QB Community Live) for accountants, bookkeepers, and attorneys.
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Hi there, Linda Artesani, Artesani Bookkeeping. This week I wanted to talk a little bit about the realization rate, what that is and how meaningful it is to track it at a law firm. I'm surprised a lot of times when I work with some of the firms that they never even considered looking at this important metric. What it really is, and there's a couple of ways you can calculate this, I prefer the collected way, the collected rate, because that's your true picture. Some firms just look at how much, how many hours were billed, how many hours were tracked on a matter, and then how many hours were billed, because a lot of times in the pre-bill or the draft stage of the invoicing, the attorney will slash down some of those hours. And they look at that and divide the 2 numbers together, what could have been billed, what was actually billed, and that gives them the percentage of their realization rate. I like to look at how much is collected because I see significant issues in a lot of the law firms when they first come to us with collecting AR. And a lot of times the AR is old and stale and they kind of write that off. That affects that realization number too, because that is really the real picture of how much money was collected is how much was invoiced and if it was paid. A few ways you can work on improving the realization rate, because you really want to keep it in the 90 to 95% range, you really want to work towards all of the billable hours getting invoiced. How do you do this? Well, it starts with really setting the table and giving the client clarity right up front in what it's going to cost to do to take on the matter or case. That's the first step. So if I come into your office and I tell you that it's going to be— I'm going to take on the divorce matter, but it's going to cost $7,000 to complete the divorce action, then you want to keep in that range of $7,000 unless something changes. It's just like working for a contractor. If there's a change order or something significantly changes, yes, then that's setting the table for expectations with the client. You want to hand-select good clients. You don't want to be working with clients that really cannot afford you. That's another area that I see sometimes. And then that's— those are the invoices that really get written off. Of course, working on admin tasks during the day and not invoicing out every hour, as I addressed last week in the utilization blog post, it's very similar. We don't want to be wasting time on non-billable tasks. But in this case, it's really tracking those billable hours for the case or matter and seeing how those turn into dollars. More improvement on this ratio will increase the revenue to the firm, and increased revenues tends to lead itself to increased profitability. So it's a win-win for the law firm. As you get a larger staff, this is a nice place to track individually. Let the attorneys start to track it so they can keep an eye on how their processes are and whether or not that, that's a way that they can increase the amount of hours billed. Of course, using a tool like LeanLaw and always tracking your hours. As you get working with a customer, you want to really click in and turn that on, track the time. Track it when it's off, and that way you're tracking every minute worked on the job and making that a habit in your day. That's just a few of the tips. I've got more tips in the blog post itself on how to increase that rate at your firm. And of course, if you want to meet with us and learn more about some of these higher-level advisory services that we offer, please reach out. We'd love to talk to you. We'd love to help you. If you're an accountant or bookkeeper and you'd like to learn more and have more one-on-one with me, I would love to have you join our Facebook group. It's called QB Community Live, and we're more than happy to help. We have a motto there: together we all succeed. And that kind of works for both sides of my practice, whether I'm working with the accountants or bookkeepers or I'm working with attorneys and law firms. Really what we'd like to do with the law firms is partner with you. So hopefully this is helpful. Again, reach out, and I'll see you all next week. Bye now.
