Mother in Law: Getting the measure of your targets

I thought it was about time I wrote another article on legal practice for junior lawyers, focusing on the measurable targets that you might be asked to meet. 

Fees paid – i.e. cash

In my opinion, this is the only target that actually matters. You should be set a target for the amount of cash that your firm wants you to bring in during a year. This should be calculated to ensure that you make a profit based on your salary and your share of overheads. Overheads (while I’m mentioning it) include support staff, rent and professional indemnity insurance.

Fees billed

This is the more common target. The traditional calculation was that your target should be three times your salary, but this now varies widely from firm to firm. I don’t think it is a bad starting point, though. The difference between ‘fees billed’ and ‘fees paid’ is crucial for your firm. It is very easy to raise an invoice for any amount, but your client also has to pay it. I’ve seen plenty of people who should know better sticking in a big invoice at the end of the year, knowing it won’t be paid – or at least knowing it won’t be paid promptly. This is bad behaviour. You should only raise a bill when you know it can be paid within your usual payment terms because your firm has to pay VAT on it. That means, in the short term, if the bill is not paid, your firm will actually be out of pocket.

Chargeable hours

When you work on a client matter, you should record your time, subject to your firm’s time-recording policy. For example, for me, this would mean I record almost all my time, but not, say, if it were a pure admin task. Best practice is ‘if in doubt, record your time’ and then make a decision about whether to bill it later. If a job took you two hours but, for some reason, you can only charge your client for half an hour, record the two and write off the difference later. I could talk all day about time-recording, but I won’t today. It’s the bane of my life. Most firms will give you a chargeable hours target, and of course, if you put the hours in (to the system), you should be able to reach your billing target. 

Non-chargeable hours

Some firms will ask you to record your non-chargeable time – for example, admin, marketing, training and so on. Personally, I think this has limited value and, if anything, takes the focus off recording chargeable time.

WIP, debt and lock-up

Work in progress (WIP) is the amount of chargeable time you have on the clock that you have not yet billed. Debt is the bills that have not been paid. Lock-up is the combination of the two. An interesting stat is your lock-up days, i.e. the average time it takes you to get paid once you have recorded a unit of time. Bearing in mind that your firm has a lot of things to pay every month – salaries, rent and so on – the lower the number of lock-up days, the better. Your firm may make strategic decisions to work in areas of the law where you have to wait to get paid (for example, in conveyancing you generally get paid on completion, or in probate matters you usually wait until there are funds in the estate), but even in those areas you can chip away at those lock-up days by having efficient practices in place.

Number of matters open, fees per matter, conversion rates

You may be given statistics on how many matters you have open, how much you billed on average per matter, and how many new enquiries you managed to turn into work. I think this information is only useful for benchmarking yourself against, say, last year. For example, if you don’t get much new work in August but can see that this happens every year, you can learn something from it (the ‘something’ being that people go on holiday in August). If you start a new marketing campaign and open more files as a result, it shows the campaign worked. What doesn’t work is comparing your open matters to someone else’s, particularly if that other person works in a different area of law. 

Write-offs

This is the amount of time you record and then write off because you aren’t going to bill it. If you are encouraged to record as much as possible, you shouldn’t be criticised for writing some of it off. 

Recovery rate

This is the percentage of the time you record that you bill at your hourly rate. So, if your hourly rate is £300 plus VAT, you spend an hour with your client and then bill them £300 plus VAT, your recovery rate will be 100%. On the other hand, if you promised them a fixed fee of £300 plus VAT but it ended up taking you two hours, your recovery rate will be 50%. If you are lucky, you might work in an area of law where you can charge high fixed fees, percentages of the value of transactions, or success fees, which means that your recovery rate could be more than 100%. 

For managers reading this, I will die on the hill that ‘fees paid’ is the only stat that really matters, if you have done your job properly in setting the right target. The rest of the stats have to be taken in the round and always have a story behind them.