Attorneys choose the legal profession for many reasons, including a desire to help people and a love for the rule of law. But who says you can’t make some money in the process? Law practices are businesses, and to be successful, firm leaders need to run them with some sense of business practicality.
Savvy lawyers understand that revenue doesn’t generate itself. It takes planning and strategizing to accurately evaluate the current health of your law firm and move it in a positive direction. Successful law firms rely heavily on data to provide the answers and guidance they need to generate more revenue. This post will explore how they do it and give you some tips to get your law firm data driven as well.
What is a Data-Driven Law Firm?
Data analysis has played an important role in business development for years. But, like most innovations, it’s a relatively new concept within the legal profession. Even with the enormous amounts of data generated, used, and stored within the average law firm, many attorneys fail to recognize how this information can be used to generate more revenue for their legal practices.
The data-driven law firm links the practice of law with the effective use of data to measure performance, address problems, and plan for a successful future. Effective algorithms help law firms benefit from both internal and external data.
Internal insights may reveal inefficiencies within your law practice process. For example, a utilization report might illustrate a shortage of billable tasks being completed each day. Armed with this information, firm leaders can identify the reason for this shortage and address it before any additional profit is lost. Internal data can also showcase opportunities to save money within the firm, as well as valuable forecasting information.
External data can prove useful in analyzing legal client behaviors and marketing trends for the purpose of creating effective business strategies. For example, website analytics can provide data about who is visiting your firm’s website, what pages they view when on the site, and how long they stay. Using this information, you can tailor your firm’s website content and postings to best meet the expectations of visitors.
Why Data-Driven Law Firms Generate More Revenue
Over the last few years, data-driven law firms have financially benefitted from their efforts. While it may seem that these firms have cracked some type of secret code to increased revenue, they are simply making the most of the data they generate, including information related to:
Alternative fee arrangements have become common within the legal profession, with increasing numbers of clients expecting these options when obtaining legal services. Many lawyers have not made the move into this arena because they fear setting their fees too low, but the right data is key to setting appropriate fixed fees.
Previous case data provides various types of information about a specific case, including how many hours it took, what individual tasks were necessary, and how much revenue your firm actually earned. This valuable data can then be used to set future fixed fees that adequately reflect all components of the case. So, the client gets a reliable flat fee arrangement, while you get a fee that sufficiently compensates your firm for work completed on the matter.
As I said at the outset of this post, a successful law firm must be run like a successful business. Data-driven firms use analytics and performance reports to review the performance of the firm and make plans for the future.
Forecasting predicts or estimates future patterns, like how many new matters will be added in the coming months, or which practice areas will continue to grow, and which ones will dwindle.
Data gives firm leaders the information they need to make smart, strategic decisions about the future of the firm. You forecast a lull in potential clients in the coming months? Plan for it by putting away some extra reserves now.
Use of resources
Generating greater revenue is not solely about brining in more clients, it’s also about how you and your staff spend firm time. Data showcases how firm employees spend their daily work hours. Practice leaders can use this information to determine whether firm resources are being used in the most profitable and advantageous manner.
How to Become a Data Driven Law Firm
Becoming a data-driven law firm may seem challenging, but there are numerous resources available to help you collect and analyze the data you need to generate more profits for your legal practice. The first step is to collect the data, which can happen in a number of ways.
For internal data, your firm needs practice management and accounting systems in place that automatically collect various types of information, such as:
- Utilization rates – This data measures how many daily hours are spent completing billable tasks
- Realization rates – This data divides the number of hours billed by the number of billable hours worked
- Collection rates – This data compares the amount of actual revenue collected to the number of hours actually billed
The right platform provides a simple and quick method for gathering relevant data without burdening you or your staff with extra tasks.
For external data, you can access any number of business databases for information about consumer trends and forecasts. In regard to specific legal data, tech companies have spent decades amassing big data in the area of legal research, investing millions into innovative technologies that can scan and evaluate documents. Seek out some of these companies and work with them to access data relevant to your legal practice.
Once you collect the data, you need to analyze it. The right practice management and legal billing systems make this an easy task. For example, with TimeSolv legal time tracking and billing software, you have access to more than 30 reporting features, providing you with internal information about:
- Accounts Receivable
- Time Tracking
- Individual timekeepers
- Project management
- Invoicing and payment
Don’t let the data revolution outpace your law firm. Implement systems and processes to become a data-driven law firm that generates more revenue.