Five Ways Your Law Firm Should Be Using Business Intelligence Reports
In 2002, the Oakland A’s had less money for player salaries than almost any other team in Major League Baseball, but in a big market with a successful team competing for fans just over the bridge, General Manager Billy Beane had to figure out a new way to compete.
And sabermetrics (known to most Americans as “Moneyball”) was born.
Sabermetrics uses advanced statistical models to mine massive amounts of individual player data and identify players undervalued by the market. By utilizing custom reports and analytics to maximize their spending power and roster efficiency, the A’s revolutionized how teams built their lineups.
Basically, baseball started using powerful business intelligence.
Your firm should do the same.
What is business intelligence?
Business intelligence, or BI, is a set of tools that analyze performance across a variety of metrics. BI gives business owners actionable data that creates opportunities for more strategic decision-making and improved operations.
Tools that might be included on a BI platform include:
- Data mining
- Data visualization
- Document automation
- Productivity monitoring
- Project management calendars
- Accounts payable and accounts receivable support
Why does my firm need a business intelligence strategy?
Everyone expects retail, manufacturing, or logistics companies to use BI. But why should a law firm add BI to its legal practice management system? There’s no inventory to track, no raw material costs to manage, and—especially when it comes to solo or small firms—no expansive overhead costs.
Even though the law firm business model is a service-based business, firms are still businesses. And every business benefits from knowing where their processes are inefficient, which target audiences they’re missing, and how they can bring in more business revenue.
To fully understand why law firm business intelligence is so important, it might be helpful to quickly review the four levels of business intelligence.
Level up your performance by understanding the four BI levels
Most law firms employ legal secretaries, paralegals, junior attorneys, and senior partners. While the scope of employee jobs may differ, each function is critical to successful management of complex legal matters.
In the same way that legal professionals have varying degrees of strategic responsibility, business intelligence programs provide a range of analytic capabilities. The four levels of BI are descriptive, diagnostic, predictive, and prescriptive.
Descriptive and diagnostic business intelligence
If you’re new to the concept of business intelligence, descriptive and diagnostic BI is probably what comes to mind when you hear people talking about it. Borrowing legal jargon, these levels of BI are like initial discovery processes in that they’re focused on looking backward to see what happened.
Primarily report-based, diagnostic BI analyzes descriptive business intelligence data to determine which factors impacted past results. Using filters (client spend, referral source, cycle time, net profit, etc.) diagnostic BI can pinpoint which circumstances are influencing whatever positive or negative trends you’re noticing in operations.
This information is valuable, but it’s also limited because the data is limited to results for individual metrics at specific points in time. Unfortunately, most law firms get stuck in these two levels, when the real value of law firm business intelligence comes from predictive and prescriptive BI.
Predictive and prescriptive business intelligence
If descriptive and diagnostic analytics are like the traditional baseball stats that guided scouts and managers for over 100 years, predictive and prescriptive BI are like Billy Beane’s sabermetrics.
While basic analytics focus on things that have already happened, predictive and prescriptive functions use past data to inform strategic decision-making processes that will impact the future.
For example, if descriptive and diagnostic reports reveal one process that’s extremely effective, predictive and prescriptive analytics will help you understand what would happen if the process was expanded into other functions and give you ideas of how you can do it.
This type of in-depth analysis is crucial to accurately forecast staffing needs, annual billing and collection rates, ROI on marketing spend, cycle times, etc.
Traditional stats (descriptive/diagnostic) vs. sabermetrics: which is better?
For a few years, sabermetrics was hailed as the future of baseball. But once everyone jumped on board, the advantage small-market teams were hoping to get over powerhouse clubs didn’t materialize.
The reality was that scouts still needed a combination of traditional stats, high-powered data analysis, and gut instinct to make the best decisions for their rosters.
The same thing is true for using business intelligence data to grow your law firm. You know your practice better than anyone, and when you augment that knowledge with solid data, it’s easier to recognize trends, capitalize on opportunities, and chart a course for the future.
With that in mind, here are five reports across all four levels of BI you need to help your firm succeed:
- Workflow productivity
- Marketing spend
- Compensation models
- Practice areas
Productivity reports can help you see if each member of your team is maximizing their work time.
That doesn’t just mean output, either. As an example, timekeepers might not cross off as many tasks in a day as their legal secretaries. But because their time generates more revenue, you don’t want them to spend it on non-billable administrative tasks.
These reports can also show you where automation processes can free up time for your admin team to work on assignments that require human rather than artificial intelligence.
No matter what your firm is billing, what you’re collecting keeps the lights on. That’s why your law firm’s collections is the be-all, end-all KPI for most law firms.
Because understanding your collections is so critical to managing cash flow, your processes need to be continually reviewed and optimized. Every level of business intelligence can provide valuable insight by showing you:
- Which payment options are preferred by customers
- Which clients are paying on time and in full
- Which timekeepers have clients that pay on time and in full
- What types of cases are most likely to result in efficient collections
- How changes in your collections processes influence your collections rate
- What percentage of collections you can expect each quarter or year
Using this information to update and improve your collections capabilities will save you and your team time and money and reduce overall stress across your firm.
Whether you’re purchasing online ads, buying space on billboards, sponsoring networking groups, or mailing newsletters to your client list, BI can help you make sure your marketing dollars are bringing clients through the door.
Analyzing the ROI of your marketing efforts can optimize future advertising strategies by ensuring your business development efforts are directed toward the most profitable channels. The more effective your marketing is, the less you have to do. And the less you have to do, the more time, money, and stress you save (notice a pattern yet?).
It’s becoming more common for law firms to provide options like negotiated fixed rates, flat fees, and task-based pricing in addition to traditional hourly billing.
But these alternative fee structures only work if you have iron-clad data proving they can be profitable. BI tools can be used to determine which case or client types work best under each model.
For example, if you run a report analyzing case profitability by type, you may notice that drafting uncomplicated wills only takes a few hours of billable time. If your average fee is lower than competitive market prices, it would be more profitable for you to charge a flat rate for drafting wills.
Diversifying your compensation models can help expand your firm’s client base.
Analyzing profitable practice areas can provide revenue and new business opportunities in the same way changing compensation models can.
Finding the sweet spot between profitability, resource management, and time spent can improve your firm’s cycle time, increase your average case value, and drive your overall revenue. And business intelligence can help you find that sweet spot.
Make legal “Moneyball” work for you
Your firm can improve its total performance just like the Oakland A’s did by harnessing the power of human and business intelligence. Rocket Matter’s legal practice management software can help. Schedule a demo or start a free trial today to find out how.