What would you do if you found out someone was stealing $1500 from your firm every day?
What if you discovered that an employee was embezzling $1500 from your firm every single day?
Contracts terminated, charges filed, and probably some new security measures in place?
That’s what I thought.
Now, what if I told you that productivity and your billing process could be stealing $1500 in revenue from your firm each day? Let me show you what I mean.
There are a few very important numbers that you should be tracking and improving in your firm:
- Utilization Rate
- Realization Rate
- Collection Rate
Utilization Rate equals the number of billable hours worked compared to the number of hours in the workday.
Realization Rate equals the number of hours billed compared to hours actually worked.
Collection Rate is the percentage of fees billed that you actually collect.
Clio did some very interesting research for their law firm trend study. They showed the average rates for firms to be as follows:
- Utilization Rate: 31%
- Realization Rate: 81%
- Collection Rate: 86%
Let’s apply that to actual numbers to see how it pans out.
A typical rate for many firms is $250 per hour, which comes out to $2,000 per 8 hour day. So far so good, right? But things go south really fast with a utilization rate of just 31 percent. In other words, out of the 8 hours in the day, the average attorney is producing just under two and a half billable hours (8*31%)! That quickly turns $2,000 into $620.
At times, it’s because the firm doesn’t have enough clients. But many times it a productivity issue. Attorneys in the firm are spending time on administrative tasks and sorting through emails rather than doing billable work. That lack of productivity is costing you, and it gets worse.
Clio found that only 81% of billable hours worked were actually billed to the client, because of time tracking and billing process issues. That means 2.48 hours turns into just 2 hours billed and $620 becomes $502.
You can see how this snowballs when hours in the office aren’t spent on billable work and the hours that are aren’t actually billed. And then, there are the hours that are billed and never collected. With a collection rate of 86%, less than one and three-quarters hours are collected from each day or work, leaving you with just $431.
This study just shows how crucial productivity and good billing practices are. In just three simple missteps, your firm lost $1500 in revenue in a single day, and that’s just one attorney. Tracking and improving these percentages can make a massive difference in your revenue and your profits.
If you’d like to start making improvements and growing your profit but aren’t sure how, I’d love to help. In fact, wrestling with your own numbers is often one of those things keeping you from chalking up the billable hours! I can take that all off your plate and help you create results you’ll love!
Check out the video below to see how $2,000/day in revenue drops to $430/day. 🤔
Source: 2019 Clio Legal Trends Report