If there is one innovation that defines how the business landscape has changed in the last fifty years it is data. Big data runs the world. It is a singular influence in politics, a juggernaut in marketing, and the most valuable commodity on the planet. Naturally, then, when data-driven approaches to measuring and calibrating success hit the business world, it caught like a house on fire. Now, of course, businesses have always quantified success but pre-digital approaches were closer to stone tablets than to modern computing in their sophistication. The sheer quantity of data informing twenty-first-century Key Performance Indicators (KPIs) has created an influx in popularity. Failure to keep up may bring on feelings of inferiority which, if left unchecked, can themselves become self-fulfilling prophecies.
Listen to this, though: more isn’t better; better is better. Tracking dozens of KPIs does not, itself, bring increased performance; for this, you need to track the right KPIs and then you need to act on the information you’ve gained.
The KPIs You Need
In working with over 1,500 different law firms from all over the U.S., I know which KPIs deliver reliable success and which of them only serve as distractions to your firm. In a world where time is nearly as precious as data, wasting it by obsessing over the wrong numbers is about as good a strategy as throwing spaghetti at the wall and seeing what sticks.
1. Annual Growth Rate (ARR)
You would think this metric tops everyone’s list, but it is all too often overlooked. Failure to see the forest through the trees is a great way to get blindsided by wholly predictable changes, which is why a big picture approach is so important. That, and ARR acts as a benchmark for so many other metrics that without it you’re working with a data handicap that’s sure to drag you down.
ARR is calculated, for example, by subtracting your January 2020 growth rate from your January 2021 growth rate. Pro-tip: don’t just calculate the annual growth rate. Crunch the numbers on monthly growth and you’ll gain a much more refined view of your firm’s health.
2. Customer Acquisition Cost (CAC)
CAC measures the cash you spend acquiring new customers and is essential for calibrating the investment you make through marketing. Calculate CAC by taking the gross margin of annualized new revenue from a given quarter and divide it by marketing costs of the previous quarter. This number viewed alongside your MRR (next on the list) tells you volumes about your firm’s viability and efficiency, which, in the carnivorous world of law, is key to survival.
3. Monthly Recurring Revenue (MRR)
If ARR is the forest, MRR is the trees. Both are needed to form the complete picture and you need a complete picture to make coherent and strategic growth decisions. Calculating MRR is as easy as multiplying the total number of active customers by the average amount billed. However simple, this number, considered over many months, is a crucial indicator of business well-being.
4. Average Task Complete Rate (ATCR)
KPIs are not only used to measure your firm’s growth, efficiency, and well-being but employee performance, as well. Calculating ATCR, for instance, provides a measure of your team’s efficiency and helps you understand how long different aspects of a project take to complete. Viewed over time, ATCR also provides insight into employee engagement (or lack thereof).
Only on an informed basis can you make the tweaks necessary to distinguish your firm from a sea of competition and ensure its rise to the top. Too much information, though, and you won’t get better at steering your business toward growth; you’ll just be better at crunching numbers and flinging about acronyms.
For insight into the right KPIs and, more importantly, what to do about them, petition a spot in Hiring & Empowering’s 66-Day Law Firm Turnaround. Aimed at high-performance firms looking to level-up, this program works with proven data to drive serious growth. Book a qualifier call with me and see your firm has what it takes to join.