Several years ago, Clio’s research team began a multi-year cohort analysis to identify contributors to sustained revenue growth among highly successful law firms. Our goal was to find great examples of successful law firms—and to define best practices for other legal professionals hoping to grow their businesses.
In this article, we discuss how our research team correlated the adoption—and use—of online payments to support key performance indicators (KPIs) that contribute to firm success.
How we defined our cohorts
Clio defined the cohorts in this study by identifying three law firm groups that have used Clio since 2013 and compared their performance data:
- Growing firms included those that increased their revenues by 20% or more over five years. This group also made up our high-performing firm, which we intended to learn from by comparing it to the other groups.
- Stable firms included those that neither increased nor decreased their revenue by more than 20% over five years.
- Shrinking firms included those that saw revenues decline by more than 20% over five years.
The Growing firms have increased their revenues by over 200% since 2013, meaning that firms in this group have managed to triple their revenue during this time period. For comparison, firms in the Shrinking group saw revenues decline by more than 30%.
Key performance indicators for revenue
While revenue tends to be the go-to measure for law firm success, KPIs are essential metrics for tracking performance.
The performance KPIs that matter most are utilization, realization, and collection rates.
- Utilization rate tells you how much of the day lawyers spend on revenue-generating work.
- Realization rate tells you how much of that work gets invoiced to clients after discounts and canceled fees.
- Collection rate tells you how much of the invoiced amount gets paid.
So, how do these metrics affect revenue performance? When comparing utilization rates, we determined that Growing firms consistently put twice as many hours toward billable time when compared with Shrinking firms.
According to Clio’s 2021 Legal Trends Report, “despite the total amount of billable work decreasing in 2020, [Growing firms] have increased both realization and collection rates during this time. This data suggests that, while the overall amount of work these firms handled may have decreased in 2020, they were able to realize and collect on more revenue for their business—resulting in stable business performance during that difficult year.”
Strong realization and collection rates indicate that firms have adequate systems to manage billing and payments—and everything to do with the related client communications surrounding these processes. Read on to learn more about the trends we’ve seen amongst Growing firms.
Using tools that improve performance
Growing firms improve key revenue-generating processes with time and billing systems. These programs help by automatically associating any time tracked by a lawyer with clients and matters and then pulling the entries when it comes time to bill the client.
Firms can take automation one step further with online payment systems. These programs automate the payment process and reconcile payments with their associated bills. So, for example, firms can send a payment link and allow their clients to pay instantly. Once the bill is paid, the payment status is updated, ensuring that all firm records are up-to-date.
Rapid adoption of online payment processing
There’s no question that Growing firms are adopting online payment systems more rapidly than other law firms—in fact, our research showed that they are 50% more likely to be using online payments technology than Shrinking firms! This finding could explain the substantial advantage in revenue growth this group has seen over the years.
Anna Valiente Gomez, Attorney At Law, gives an example of how her billing and payment processing software helps expedite new casework and makes collections easier and more convenient for both her firm and her clients:
… I’m in Estate Planning and some of my services can be a large amount of money to pay all at once. With payment plans, I can stagger payments and make it easier for the client to pay as the work progresses instead of paying everything upfront. It gives clients more options and it is convenient.
Using online payment processing with clients
While adopting new technology is a great first step for law firms, the process of actually incorporating the new capabilities into daily workflows is how the true benefits of technology are realized. Unsurprisingly, Growing firms have not only adopted online payment capabilities more rapidly, but they’re also much more likely to actually use the capabilities. As a result, Growing law firms averaged twice as much online payment revenue each month compared to Shrinking law firms.
Within our Growing firm cohort, we measured online payment adoption based on their use of the payment processing features offered within Clio Manage. This means, for these firms, their payment workflows are deeply connected to their firm processes—making it much easier to collect payments from clients.
Considerations for adopting technology
Our findings demonstrate that the most successful law firms adopt technology rapidly and enthusiastically. However, it’s essential to consider how new technology will impact existing systems and processes and whether your firm can confidently implement the technology. As a first step, firms should focus on what areas of their practice they want to improve through technology and, from there, identify solutions that can seamlessly integrate with their existing workflows.