Law Firm Key Performance Indicators (KPIs)
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Clio’s law firm key performance indicators (KPIs) provide benchmark insights into how law practices are performing over time, allowing firms to measure and improve their performance. They include:
Utilization rate
The percentage of an eight-hour day that gets put towards billable work.
Realization rate
The percentage of billable work that gets invoiced to clients.
Collection rate
The percentage of invoiced work that gets paid.
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Law Firm Utilization Rates
in 2024
The average utilization rate for law firms in 2024 is 37%. This means that, in an average 8-hour work day, lawyers are capturing 2.9 hours’ billable hours.
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Law Firm Realization Rates
in 2024
The average realization rate for law firms in 2024 is 88%. This means that, in an average 8-hour work day, lawyers are invoicing 2.6 hours’ worth of billable work to clients.
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Law Firm Collection Rates
in 2024
The average collection rate for law firms in 2024 is 91%. This means that, in an average 8-hour work day, lawyers are collecting 2.3 hours’ worth of invoiced work from clients.
Lockup
“Lockup” is a term used in accounting to assess cash flow in businesses. For law firms, it shows how much revenue—measured in days of work—is unbilled and uncollected at any given time.
Lockup provides an indication of cash flow. Decreases in lockup mean firms have more annual revenue on hand to better cover expenses or fund expansion. However, increases in lockup trap revenue in unbilled or uncollected states, leaving firms vulnerable to liquidity problems and stalled growth.
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Lockup consists of three measures within the billing process and is measured in days. Calculating lockup allows law firms to determine how many days’ worth of unbilled or uncollected work they are carrying. But how is it done?
Realization Lockup
= (work in progress ÷ previous 12 months of revenue) × 365 days
This is the amount of revenue that is unbilled at any given time (also known as “work-in-progress lockup”).
Collection Lockup
= (accounts receivable ÷ previous 12 months of revenue) × 365 days
This is the amount of revenue that is uncollected at any given time (also known as “debtor lockup”).
Total Lockup
= realization lockup + collection lockup
This is a combination of revenue held in both realization and collection lockup.
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Realization Lockup Rates
in 2024
The median amount of realization lockup that firms carry is 47 days. For comparison, the top 25% of law firms have realization lockup of 25 or fewer days and the bottom 25% have more than 101 days worth of their annual revenue in an unbilled state.
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Collection Lockup Rates
in 2024
The median amount of collection lockup that firms carry is 27 days. For comparison, the top 25% of law firms have collection lockup of 8 or fewer days and the bottom 25% have more than 74 days worth of their annual revenue in their accounts receivable.
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Total Lockup Rates
in 2024
The median amount of total lockup that firms carry is 92 days. For comparison, the top 25% of law firms have total lockup of 49 or fewer days and the bottom 25% have more than 189 days worth of their annual revenue in either an unbilled or unpaid state at any given time.