Did you know that the average utilization rate for attorneys is only 30%? That means lawyers are spending lots more time on unbillable work than they are on billable work, which is leading to low profitability. So, what’s the key to boosting law firm profitability?
One of the biggest differences between highly profitable firms and ones that just break-even is a commitment to consistency in tracking time. Thorough time tracking for lawyers can help firms identify and solve inefficiencies. Use these four tips to increase time tracking consistency – and therefore profitability – at your firm:
- Track time consistently
- Keep an eye on unbillable hours
- Introduce work-in-progress reporting
- Audit how your firm spends its time
1. Consistency and accuracy is critical
Consistency and accuracy in time-tracking can help increase billable hours. If you use start and stop a timer when you start and end a task, you will get an accurate assessment of the time it took. If you use your “gut” to estimate the length, you will invariably under-estimate the time.
This underestimation will be more pronounced if presenting clients with a costly invoice makes you feel uncomfortable. Some attorneys feel a sense of guilt about what they charge for their services, so they either underestimate the time they spent on the file or end up not billing for all of the hours they’ve worked. However, when you accurately track your time, you’ll feel comfortable billing clients the full-billable amount because you have the data to back it up.
The first step to increasing profitability is creating a uniform system for tracking time at your firm. Do you bill by the hour, round to the nearest quarter-hour, or bill by the minute? Establish a firm-wide standard.
Then, make sure to use the same tools practice-wide. Uniformity in software makes it easier to combine time-tracking data for matters that multiple attorneys work on. Matter365’s time-tracking legal software lets you start and stop the clock within any Office365 application.
Finally, share time data with your clients. Include exported time tracking data with invoices to build client confidence, verify invoice accuracy, create a paper trail, and get rid of that billing guilt once and for all.
2. Track unbillable hours to discover inefficiencies
In addition to keeping track of time spent on billable work, it’s also important to track time that isn’t linked to your clients’ matters. But why pay attention to time you can’t charge for? Won’t that make my firm feel like Big Brother is watching them? While this practice may take some getting used to at first, it will benefit your firm in the short and long term by increasing the visibility of inefficiencies in your practice.
Remember that 30% utilization rate we mentioned earlier? You may think that you’re only spending an hour of your day on unbillable admin tasks, but tracking your time could reveal that you actually spend the majority of your day on unbillable work.
You can’t fix problems you’re not aware of. Using time tracking legal software even as you work on unbillable tasks can shed light on areas in need of improvement. The first step to streamlining admin work and becoming an agile law firm, is uncovering how you use your time.
3. Introduce WIP reporting to boost accounts receivable vigor
Introducing work-in-progress (WIP) reporting is another time tracking tip for lawyers that can be used to improve law firm profitability. WIP reporting means recording the value of billable time worked that has not yet been invoiced.
Doing this exercise, with the help of time tracking legal software, will give you a real-time view of your exposure for unbilled hours. It will help you understand what you will bill at the end of the month, which improves invoicing and accounts receivable vigor. With consistent WIP reporting, you’ll ensure you don’t miss any opportunities to invoice, thereby maximizing your law firm’s profitability.
4. Audit your time to boost law firm profitability
If you’ve taken all the steps we’ve described thus far, you should have detailed, consistent data about your billable hours, unbillable hours, and works in progress. Don’t just use that information to generate invoices. Review that data in detail to find patterns of low productivity.
Has your utilization rate gone down over the years? Why is that?
Is your utilization rate much different than what you expected? Analyze why that is.
Are some attorneys are underperforming compared to the rest of the firm? Can you help them improve their utilization, or does it make more sense to let them go and replace them with freelance help on an as-needed basis?
Are you working inefficiently to bill more hours? Would charging a flat fee help you increase productivity, take on more clients, and improve law firm profitability?
Conduct an audit of how your firm spends its time to discover new opportunities for improvement.
The bottom line: Consistency in time tracking can boost law firm profitability
While many factors affect law firm profitability, improving the consistency of your time tracking practices is a simple solution for making a real impact on your bottom line. When you create a uniform process for tracking billable hours — and also measure time spent on unbillable work and work in progress — you’ll be able to bill more, discover inefficiencies, and implement changes that increase profitability.
Fortunately, you don’t have to do it alone. Matter365’s time tracking legal software can help you reduce time spent on admin work. Try Matter365 for free.
