Data analytics allows firms to find the right balance in providing clients with flexible pricing options while still protecting firm profitability.
Our title borrows a famous quote from William Edwards Deming, an American engineer, statistician, professor and author often labeled “the original data scientist.” Deming also said, “Without data, you’re just another person with an opinion.”
Fortunately, the legal landscape is rapidly shifting, and digital transformation is allowing us to inform our business strategy opinions with facts. Firms of the future will enjoy a new digital reality with the help of practice management platforms and data analytics solutions.
As new tools reduce complexity, data analytics has become a primary driver of business strategy. This is particularly in response to the continuing situation with COVID-19, which has changed every aspect of how and where law firms work and collaborate.
4 Ways Data Analytics Can Benefit Firms
Practice management software houses all your firm’s business intelligence and financial data. That wealth of information on clients, cases, billable time and financial performance is a gold mine for identifying new ways to improve the business of law. Here we offer a few valuable uses for data analytics and resources to help you make effective use of data-driven decision-making.
1. Identify better business models
The top three most important uses of legal analytics, according to respondents in the LexisNexis 2020 Legal Analytics survey:
73% – Gaining competitive insights
68% – Pricing projects or legal matters
67% – Intelligence for pursuing new business
Data analytics allows firms to find the right balance in providing clients with flexible pricing options while still protecting firm profitability. Analyzing bill collections and profitability rates can help you determine when to charge hourly billable rates and when to offer alternative options, such as flat fees or capped and blended rates.
2. Analyze data to assess lawyer productivity and performance rates
It’s important to know who is doing productive and profitable work and who may need more resources or coaching to raise their productivity.
In the 2020 survey, most firms (84%) report having underperforming lawyers.
Measuring a lawyer’s utilization rate offers a gauge of individual productivity. It conveys how much time is spent on billable work for clients. Utilization is calculated by dividing a lawyer’s billable hours by the total hours worked.
Of course, maximum productivity would be a utilization rate as close to 100% as possible, but lawyers must spend some of their time on administrative tasks. The 2021 Legal Trends Report suggests that an average utilization rate of 66% is a reasonable goal.
3. Determine the profitability of each practice area
If your firm is using a practice management platform, you have volumes of data that can help you determine profitability. Check out Conducting a Law Firm Profitability Analysis with Practice Management Software.
CARET Legal Partner Affinity Consulting offers a quick read on Law Firm Profitability Analysis.
4. Determine where new business originates
Your firm may receive referrals through word-of-mouth, the local bar association or other marketing endeavors. You want to know what works best so you can build on successful efforts.
How strong are your referrals? This post offers 5 Tips on Getting More Client Referrals for Your Law Firm.
An element of digital transformation is an effective use of internet search engines, ads and local postings to allow prospective clients to easily find and contact your firm. Knowing the number of web-based inquiries will inform your decisions on marketing spend.
Data analytics provides a straightforward way to identify patterns and trends that pinpoint when and where growth occurs in your firm and where concentrated efforts will optimize additional potential.
No number-crunching required: the facts are at your fingertips with CARET Legal.
Gain insights that help you make better business decisions. Get started today with our guide: 5 Tips for Improving and Actually Using Your Law Firm’s Data.
You won’t be starting from scratch. CARET Legal’s practice management system is your data repository to draw on to turn data into insights, see trends and opportunities and make informed decisions.