Several years ago, our research team undertook a multi-year cohort analysis to learn more about what contributes to sustained revenue growth among highly successful law firms.
In doing so, we hoped to find great examples of successful businesses in legal—and to define some best practices that other legal professionals can learn from and adopt.
Our first step was to identify a group of law firms that had unquestionably outperformed others—and then to find characteristics that distinguished this group from others. After experimenting with some baseline parameters for the study, our team identified a substantial group of law firms that increased revenues consistently to achieve 200% growth since 2013, giving us our comparison group to model success.
In this article, we break down how our research team was able to correlate the adoption—and use—of online payments to better performance against key performance indicators (KPIs) that contribute to firm success.
Defining our cohorts
Before we look at the analysis, a note on responsible data management: Clio takes the utmost care in ensuring the data security and privacy of its customers. All of this analysis was conducted using aggregated and anonymized data, which means no individual law firm can be identified.
To compare what high-performance looks like, our research team identified three cohorts of law firms that have been using Clio since 2013, and then compared performance data between these groups:
- Growing firms included those that grew their revenues by 20% or more over five years. This group also made up our high-performing firm, which we intended to learn from by comparing to the other groups.
- Stable firms included those that neither increased nor decreased their revenue by more than 20% over five years.
- Shrinking firms included those that saw revenues decline by more than 20% over five years.
While our team defined these groups based on their performance over a period of five years, we’ve seen in our ongoing analysis that the growth trends within these groups have remained relatively consistent beyond the initial five-year period.
In fact, the Growing firms have continued to grow their revenues by over 200% since 2013. This means that on average, firms in this group managed to triple their revenue in this time period. For comparison, firms in the Shrinking group saw revenues decline by more than 30%.
Key inputs to revenue growth
While revenue remains the top-line measure for this analysis, and likely what most firm managers are interested in, there are a series of key performance indicators (KPIs) that function as essential inputs to earning more money.
These KPIs help indicate why certain law firms (in this case our Growing firms) have been able to outperform those in other groups.
The KPIs that are relevant—and help provide insight into more granular areas of performance—include utilization, realization, and collection rates:
- Utilization rate shows how much of a working day individual lawyers put toward revenue-generating work.
- Realization rate shows how much revenue-generating work actually makes it to a client-facing invoice after any discounting or canceled fees.
- Collection rate shows how much of all invoiced amounts get paid to the firm.
To see how these metrics affect revenue performance, when comparing utilization rates, Growing law firms consistently put twice as many hours toward billable time than Shrinking firms.
Additionally, despite 2020 being a difficult year for most law firms, strong realization and collection rates helped Growing firms maintain their businesses:
Despite the total amount of billable work decreasing in 2020, [Growing firms] have increased both realization and collection rates during this time. This data suggests that, while the overall amount of work these firms handled may have decreased in 2020, they were able to realize and collect on more revenue for their business—resulting in stable business performance during that difficult year. (2021 Legal Trends Report)
Each of these KPIs speaks to the healthy management of key areas of a business. A strong utilization rate indicates that a firm has a good pipeline for new business and its lawyers are able to put time toward working cases in the interest of their clients.
Strong realization and collection rates indicate that firms have effective systems in place to manage all of the billing and payments—and everything to do with the related client communications surrounding these processes—which brings us to the success trends we’ve seen.
Growing law firms adopt online payment processing more rapidly
A consistent trend we’ve seen in the Growing cohort is that these firms adopt technology at a quicker rate than firms in the other two groups.
To help explain how Growing firms have been able to consistently outperform their counterparts in terms of their realization and collection rates in recent years, our team looked at the adoption of billing and collection capabilities—specifically, online payments.
Our analysis showed that Growing firms have adopted online payments at a faster rate, resulting in them being 50% more likely to be using this technology than Shrinking firms. This could help to explain the strong advantage in revenue growth this group has seen over the years.
Anna Valiente Gomez, Attorney At Law, gives an example of how her billing and payment processing software helps expedite new casework and makes collections easier and more convenient for both her firm and her clients:
My intake and collections process is much quicker than before. From sending a bill to getting paid, it is now one day instead of a whole week. I can send a client an agreement with a payment link and get paid that day, which means I get started right away instead of waiting for a check in the mail.
… I’m in Estate Planning and some of my services can be a large amount of money to pay all at once. With payment plans, I can stagger payments and make it easier for the client to pay as the work progresses instead of paying everything upfront. It gives clients more options and it is convenient.
While Anna’s situation is not unique, there is another dimension to adoption that’s important to consider when it comes to technology and firm performance.
Tools that can help improve business performance
Time and billing systems greatly improve key revenue-generating processes for law firms. For example, they ensure that any time tracked by a lawyer is easily associated with a client and matter. When it comes time to bill clients, these solutions will automatically pull any tracked time into an invoice, which can then be adjusted or discounted if needed.
Online payment capabilities make these workflows even more efficient by automating the payment process with clients, as well as reconciling those payments with their associated bills. This means that firms can send a payment link with online bills, giving clients the ability to pay instantly. Once a bill is paid, the payment status will be updated automatically—helping ensure that all firm records are up to date at all times.
Growing firms are also more likely to use online payments with clients
While Growing firms have adopted online payment capabilities at a more rapid rate than shrinking firms, they are also much more likely to use them when collecting payments from clients.
This is based on the fact that of those who have adopted online payments Growing law firms averaged twice as much online payment revenue each month compared to shrinking law firms.
This is an important distinction. While bringing a new technology into a business is a good first step, the process of actually incorporating the new capabilities into daily workflows is how the true benefits of technology are realized.
There are many aspects to implementing new technologies at a law firm, which include making sure to look for technologies that are actually going to benefit the firm and its clients. But the other side to implementing new tools is to identify the types of solutions that will be easier to implement to begin with—for example, by finding capabilities that work with existing tools. This will help avoid introducing new burdens and inefficiency—while creating more seamless automations that will actually result in net new time-savings and improved work results.
Within our Growing firm cohort, we measured online payment adoption based on their use of the payment processing features offered within Clio Manage. This means, for these firms, their payment workflows are deeply connected to their firm processes—making it much easier to collect payments from clients.
Proficiency in technology adoption
The results of these analyses make a strong case for how technology can benefit law firms. Finding the right solutions can increase a firm’s capabilities and make them easier to manage.
But as legal professionals continue to expand the range of solutions at their firms, lawyers should look to find ways to adapt their existing systems and processes. This is where it’s important to be proactively selective about which solutions to invest in.
For any firm looking to expand their capabilities, the most important thing for lawyers to focus on is to know which areas of their practice to improve, and to be confident being able to use the solutions they invest in.