A law firm report card is a good thing. Much like a child’s school report card telling a parent how school is going, a law firm report card can inform firm leadership about its progress, shortfalls, and areas that need improvement. In these days of industry disruption and heightened competition, periodic assessments can give a firm direction that it otherwise might not have.
Taking stock of a firm’s performance can be done at any time-it need not wait until a fiscal year’s close or only be an annual affair. Simply put, making sure the review gets done is more important than when it is done. Equally important is the need to review things that are probative of a firm’s health. Focusing on irrelevant markers can not only confuse leadership about a firm’s well-being, but it can be waste of time.
While a firm’s performance can be measured by any number of relevant facts, the following five metrics can help many firms assess their annual performance:
Financial Efficiency. Financial efficiency encompasses a lot of things but in essence it examines a firm’s financial health as measured by revenues, profitability, debt levels, margins, productivity, rates, realization-basically everything that impacts a firm’s financial standing. Because there are many different kinds of firms, the exact financial measurements will vary from firm to firm. But the importance of a frequently graded financial performance to the longevity of a firm cannot be underestimated.
Client Intake. The lifeblood of any firm is its clients and the ability to replenish them when some clients are no longer around. Pick any period of assessment and examine the firm’s success in landing new clients to see how the firm is doing. It takes a lot of work and much effort to get clients. If the firm has been light on success in this area, attention needs to be dedicated to fixing any flatness or downward trend.
Matter Openings. A key measurement of a firm’s success is its ability to open new matters for existing clients. Nurturing an existing client base often is overlooked by firms in their quest to land new clients. Indeed, using an existing client base to expand a firm’s workload is a natural strategy that many firms acknowledge but do too little to make happen. Every firm should assess its performance in expanding its existing client base by knowing the number of new matter openings for existing clients. An annual grade helps guide a firm towards curative action needed, if any.
Unwanted Attrition. Law firms are in the talent business. If it has great lawyers and staff it likely is doing well overall. A loss of some of those key players can negatively impact a firm’s performance both in the short and long terms. The challenge to staying on top of the talent game often comes from unwanted attrition. In the recent past, has the firm lost lawyers and staff it valued? Assessing recent attrition is one way to grade recent performance.
Professional Growth. A firm that allows its professional growth to stagnate is not going to do well over the long-term. An attitude or culture of “suit up and show up” will deprive a firm of the needed energy and will stifle its professional development to its detriment. Continued professional growth by becoming thought leaders, bar association leaders, or the “go-to” lawyers for important substantive issues is something a firm should strive for. Anything short of a commitment to professional development limits a firm and encourages others to pass it by. Assessing the professional growth of the firm in the most recent reporting period is critical for the long-term health of the firm.
Bringing the report card home was a time of trepidation for many a kid because it was a time of accountability. For law firms, grading performance through objective and critical eyes likewise brings accountability-in this case to leadership and the firm as a whole. If you were awaiting a grade for your firm’s recent performance, would you be nervous?