Originally published in Law Practice Magazine and co-authored with Stephen Mabey of Applied Strategies, Inc.
Many law firms use Key Performance Indicators (KPIs) to maximize their profitability, but have little knowledge of what their clients’ KPIs are. This is because law-firm partners commonly hold the view that the lawyer has lots of experience with this type of client or work, and believes he or she knows what the client wants already. However, the only way to really know what clients want is to ask them. When you ask clients what’s important to them, these five client-facing KPIs usually stand out.
Deliver on Time
Most clients have a good idea of the turnaround time they require from the law firm. But you need to ask them what that timeline is in order to find out exactly what they’re looking for here. Then you need to measure your success in achieving this objective on an ongoing basis, because the client certainly will be.
Meet Budget
The client expects an estimate or budget for the legal costs up front, and will judge you on how close you come to the original estimate and how frequently you meet budget. The client will also expect you to be as efficient as possible.
Be Effective
Did you achieve the outcome the client was looking for within the client’s cost parameters? First you need to ask the client up front what outcome he or she views as success. You then need to measure your progress toward achieving this outcome on a regular basis throughout the file.
Add Value
Ron Baker, a well-known value-pricing consultant, created this formula for determining value. I have modified it slightly for this article.
Value = Increase in client profits minus the cost of your legal services. The client’s perception of value is determined by its view of how much “profit” you added to its bottom line during your engagement. The client assesses the value that your firm added on both a quantitative and qualitative basis.
Value can be added in four main quantitative ways:
1) Help the client increase revenues—e.g., refer work to client, obtain large recovery on plaintiff file, etc.
2) Limit costs, e.g. reduce payout on an insurance matter
3) Reduce risks, e.g. prevent potential for future payouts
4) Use your firm’s reputation to help the client obtain financing
In addition, the client will qualitatively assess your firm’s “value add” based on criteria such as your creativity, what you added to its knowledge systems, your win/loss ratio, and whether you work compatibly with its people and its culture.
Satisfy the Client
The client is constantly evaluating you on all of the above factors in assessing its satisfaction with your service. Amazingly, recent studies show that the average law firm asks only five of its 20 top clients whether they are satisfied with the firm’s service. Law firms need to be more proactive about asking clients if they’re satisfied, and make changes as required to meet the clients’ satisfaction. You can track client satisfaction on a continuous basis using interviews, survey questionnaires, and so on. Keep regular track of your client-satisfaction scores, and focus on increasing satisfaction. Reward partners for achieving high client-satisfaction scores.
The Challenge
Hourly billing systems are still the norm for law firms and encourage law-firm partners to maximize billable hours and production, not to be timely and cost-effective on client files. The challenge for most firms is how to motivate partners to achieve both firm profitability and client KPIs. Law-firm partner-compensation systems must be modified to reward partners for being on time and cost-effective in order to make this happen. Whether you bill on an hourly or fixed-fee basis, however, you still need to maximize value for your clients. That’s how you can establish a long-term strategic partnership with your clients, which will provide a steady and growing stream of profits for years to come.
Are you ready for client-facing KPIs? Put your clients’ success first, and use this goal to motivate all lawyers and staff in your firm. The rest should follow naturally.
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