Washington Lawyer - March/April 2024 - 8

PRACTICE MANAGEMENT
How Does Your Firm
Stack Up on Productivity?
By Dan Mills
H
ave you ever wondered how
your law firm measures up
to others on metrics such as
fees charged, hours billed,
productivity, and cash flow? Until
Clio started producing its annual
" Legal Trends Report " in 2016,
there was really no way to find out,
short of comparing your numbers
with another firm's.
Clio's 2023 report is especially revealing because
it analyzes data back to 2016, drawing
some surprising conclusions. I'll cover the main
points here, but first, a word about Clio and
why it has this data in the first place.
Clio is a legal technology company specializing
in cloud-based software that handles various
practice management tasks, from intake to
document management to billing. Cofounded
in 2008 by Jack Newton, a nonlawyer entrepreneur,
Clio now offers CRM (customer relationship
management) applications for firms to
track leads; prospective, current, and former
clients; and anyone else whose relationship
needs to be managed. (Full disclosure: Clio is
an affinity partner of the D.C. Bar.)
At some point in its early years, Clio realized it
was sitting on massive amounts of data from its
law firm clientele that could provide insight into
how firms operate. It produced its first " Legal
Trends Report " in 2016 and continues to publish
its annual reports for free. While they are very revealing,
useful, and one-of-a-kind resources on
law firm metrics, they are simultaneously subtle
marketing devices for Clio to enlarge its customer
base.
Competitors have recently entered the reporting
arena, but none produces reports as in-depth as
8 WASHINGTON LAWYER
* MARCH/APRIL 2024
Clio's. Here are some highlights from Clio's 2023
report.
* Lawyers' hourly rates have risen steadily since
2016, increasing by 28 percent, with D.C. lawyers
being paid the highest at $392. Billing
rates for nonlawyers have increased by 19
percent over the same period.
* Lawyers are working heavier caseloads and
earning more than two and a half times more
for their firms than in past years. Specifically,
they are handling approximately 25 percent
more cases and recording 35 percent more
billable hours compared to 2016.
* Electronic billing and payment systems are
powerful tools for firm efficiency and create
positive client experiences. For example, simple
workflow improvements show firms billing
18 percent more of their work to clients, resulting
in substantial revenue gains. After controlling
for increases in hourly rates, the average
lawyer earns nearly three-quarters more revenue
for the firm than they did in 2016.
* Clio has found that since 2016, lawyer utilization
rates have significantly increased from 28
percent to 37 percent, which represents nearly
three-quarters of an hour of billable time
added for every day worked. While Clio characterizes
this as a " massive boost in lawyer
productivity, " it also reports that " nearly twothirds
of the workday still goes underutilized
with respect to billable client work, meaning
there is still much room for improvement. "
Clio employs key performance indicators for
measuring a firm's performance. The utilization
rate measures the percentage of an eight-hour
day put toward billable work. The realization
rate measures the percentage of billable work
that gets invoiced to clients. The collection rate
measures the percentage of invoiced work that
gets paid.
Having been a small firm lawyer for 30 years,
I've never been sure that Clio understands that
the reason small firms consistently generate
this utilization rate is because the small firm
lawyer is doing everything in the firm, from legal
work to management to marketing to carrying
out the trash. While Clio has a few lawyers
on staff, it's not connected as deeply to its customer
base as it needs to be, in my opinion. But
this is true of most case management applications.
Just listen to the lawyers who use them
- none is perfect.
Realization rates have increased from 77 percent
to 86 percent, showing that firms are invoicing
more of their billable hours. Collection
rates rose from 86 percent to a high of 90 percent
in 2021, but fell slightly to 89 percent in
2022 and 2023. The fact that collection rates
haven't increased as much as utilization and realization
rates over the last several years shows
that getting paid is a crucial area where most
firms can improve.
Clio found that when applying realization and
collection rates to overall utilization, 28 percent
of the average lawyer's workday contributes to
firm revenue. This amounts to just over two
hours per day. Compare this to 18 percent in
2016.
For the first time, Clio analyzes the accounting
term " lockup " when looking at firm productivity.
As a measure of cash flow, lockup for law
firms shows how much revenue, measured in
days of work, is unbilled and uncollected at any
given time. The median lockup among law
firms is 97 days.
Clio's 2023 report is full of additional information,
including a section on artificial intelligence
and lawyers' and clients' attitudes toward
it. Grab a copy from Clio's website or
email PMAS@dcbar.org to see how your firm
compares.
D.C. Bar practice management advisors Dan Mills
and Kaitlin McGee are available at dmills@dcbar.
org and kmcgee@dcbar.org, respectively.
Washington Lawyer - March/April 2024

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