Identify and Improve Law Firm Profitability Using Time Tracking Software
Analytics | IP Business Management
February 8, 2024
Time tracking software can address a common concern for law firms - growing their business while staying profitable. Technology can play an important role in facilitating this profit growth, but many firms don’t know where to begin.
Domenic Leo, VP/General Manager of Anaqua’s Law Firm Strategy, spoke with Michael Fleuchaus, of Fleuchaus & Gallo Partnership, about his experience in implementing autonomous timekeeping software, WiseTime®, in his practice. Fleuchaus is a German and EU Patent Attorney and UPC Judge with a background in computer science. He leads the innovation and transformation through software enablement in his law firm.
The topics discussed include:
- KPIs that drive profitability
- Improvements for profit growth
- Use case at Fleuchaus & Gallo Partnership
- How time tracking software improves client relationships
- Time tracking’s effect on profitability and utilization rate
KPIs that Drive Profitability
It can be daunting to determine which metrics to use to measure profitability in your law firm. Two key measurements discussed are utilization rates and realization rates. These are important metrics because they don’t depend solely on increasing the amount of work performed but rather on maximising the potential return on the work already being performed. We define these as:
- Utilization rate: measures the workload and productivity of the firm
- Realization rate: measures the potential value of the work performed by the firm
Most firms are missing out from a utilization perspective. The 2022 Clio Trends Report found that only about 33% of an attorney’s work was billable. In other words – they’re doing a lot of work that is not necessarily leading to profitability.
In terms of realization rates, law firms tend to perform better, however, there’s a significant percentage – up to 16% - where billable work is being done but not billed.
These numbers are not at all uncommon within the industry, but they are lower than they should be. Law firms say they are busier than ever and struggling to manage the workload, however this doesn’t necessarily translate to an increase in the bottom dollar. By focusing on improving these two KPIs, law firms can ensure they remain profitable.
Improvements for profit growth
By ensuring tasks are accurately measured through an automated time recording application, we’ve seen firms empowered with the data that they need to be able to focus on improving the realization and utilization rates. These are the key areas law firms can make improvements that positively impact profits:
- Automate manual tasks and processes
Automating routine, repetitive tasks helps reduce costs, and minimizes risk which is a benefit to the firm and your clients.
- Track billable tasks
Many micro-tasks go untracked and therefore unbilled because the process to track them is long or tedious and outweighs the benefit of tracking. When time records aren’t meticulously kept, firms tend to underbill rather than overbill clients.
- Reduce non-billable hours
Lawyers need to spend their time on billable tasks to increase the profitability of their firm. The first step to reducing non-billable tasks is to identify them to better understand where efficiencies can be gained.
- Make accurate forecasts
Running a successful law firm business relies on accurate forecasting. A recent report found that 43% of partners are reducing their bills when the actual time spent on a matter exceeded their forecasted expectationsi. Having reliable data on the cost to produce services allows attorneys to provide more accurate forecasts for clients and reduce write-offs.
Use case at Fleuchaus & Gallo Partnership
Fleuchaus & Gallo Partnership operated like most other traditional law firms prior to partnering with WiseTime. They had a relatively good idea of what their products and services cost to produce but no concrete data to support this. Fleuchaus decided to improve this situation by automating time capture to ensure that they could make informed decisions, provide accurate quotes, and have better visibility into their utilization and realization rates.
WiseTime is an autonomous timekeeping software for lawyers, which means that it doesn’t require attorney’s to manually input the time records. By leaning on WiseTime as their timekeeping software, they knew the precise costs of their work and were able to forecast the profit margin on incoming jobs with accuracy, which led to better decision making and year-over-year growth.
Fleuchaus & Gallo saw an immediate improvement in profits and utilization rate as a direct result of the implementation of WiseTime. Fleuchaus mentioned,
An example of the microtasks Fleuchaus refers to is when attorneys spend a block of time on many emails. Manual time entry for each of these is too tedious to capture. With the autonomous nature of WiseTime, it is all captured for you, and you see this additional time across the week adding up and your billable tasks not getting lost.
How Time Tracking Software Improves Client Relationships
As Fleuchaus & Gallo Partnership were collecting very precise data on the number of billable hours spent on client cases, they began to bill out these extra costs. The times recorded by WiseTime were significantly higher than those previously captured using manual time tracking.
Fleuchaus was pleasantly surprised to learn that the extra time billed to clients did not harm the client relationship but rather strengthened it. He shared his experience on this:
“Because we had such accurate data, we could deliver minute by minute accounts of what users were doing, and we could simply prove that attorneys weren't sitting on their hands and charging more than they did before. This way, any discussion with any client that was raising the question instantly ceased, and the clients are still happy clients. We didn't lose a single client because of any increased billings, but quite to the opposite, the client started to be much happier with the accuracy of the account that we gave them for what they are being charged.”
Time Tracking’s Effect on Profitability & Utilization Rate
Fleuchaus summarizes the effect that the implementation of WiseTime has had on his law firm:
Fleuchaus notes that in his firm’s case, attorneys were saving 3-3.5 hours per week so in the realm of 156 – 182 hours per year of additional billable time. When you multiply that out by their hourly billable rate, you can see just how profitable the switch to autonomous timekeeping can be.
Key Takeaways
By focusing on improving metrics in the right areas and ensuring that the data captured to support that is accurate, law firms can remain profitable and continue to grow without necessarily increasing headcount.
The adoption of technology to enhance processes and reduce manual tasks is crucial to growth. While this may seem like a daunting undertaking, Anaqua’s law firm clients have proven over and again that even by beginning with the outsourcing of a small task such as timekeeping to an intelligent software alternative, the results can be quite dramatic, and ROI can be seen in a relatively short time.
To find out how much your firm can benefit from automated time tracking, request your personalized ROI analysis today. You can also learn more about WiseTime and AQX Billing here.
Further Reading
