The “Final Four” KPIs for Law Firm Growth and Profitability

0:00 Introduction to Terrell Turner & TLTURNER GROUP

02:35 Why Most Law Firms Struggle with Financial Visibility

06:20 The March Madness KPI Bracket: 60+ Metrics Down to 4

09:10 What Is a KPI (and Why Most Law Firms Track the Wrong Ones)?

12:30 How to Identify the Metrics That Actually Drive Profitability

15:45 The “Final Four” KPIs Every Law Firm Should Track

20:10 KPI #1: Revenue per Employee

22:40 KPI #2: Collection Rate

26:30 KPI #3: Net Profit Margin

30:05 KPI #4: Overhead Ratio

34:10 When to Hire (and When Not To) Based on KPIs

37:45 Why KPIs Help You Make Strategic, Not Emotional Decisions

41:30 How TLTURNER GROUP Helps Law Firms Understand Their Numbers

Jason Marsh (00:00)
On today's show, Terrell Turner, CPA and founder of the New York Times recognized accounting firm TL Turner Group. And we'll be talking about the top four key performance indicators or in the spirit of March Madness, the final four KPIs every growing law firm should be

Terrell Turner, CPA (00:18)
what we're really trying to say is if we look at how much money we are spending on our employees, the next question we ask ourselves is, how much money are those employees generating for the firm? And then when you compare those two numbers, you can see , hey, are they paying for themselves? Is it worth it?

Jason Marsh (00:39)
Welcome to the Alpha Lawyer podcast, a show dedicated to exploring what makes law firms thrive. I'm your host, Jason Marsh. Join me as I interview some of the smartest thought leaders and accomplished law firm owners in our space. Together, we'll dive deep into law firm operations, marketing, technology, finance, and everything else you need to build an incredible firm that allows you to live your best life.

Jason Marsh (01:04)
Hello, welcome back to the Alpha Lawyer podcast. I'm Jason Marsh. But more importantly today, I'm here with Terrell Turner. And we're gonna be talking about the top four KPIs, also known as key performance indicators that law firms should be tracking. And In the spirit of March Madness and the NCAA basketball tournament, as Terrell put it in a recent article that he wrote, this is the final four law firm KPIs.

And just real quick here for the, I'm sure you all know Tyrell here, but for those of you that don't, Tyrell is a CPA. He's the founder of a New York Times recognized accounting law firm. You can find that law firm at TLTurnerGroup.com. He's also a three time top CPA in America, a two time top 20 global finance influencer. And so his accounting firm focuses on making accounting and finance less complicated.

for law firms. And I think that's something we all need Great to see you, Terrell. Thank you so much for coming on.

Terrell Turner, CPA (02:00)
Hey, thanks for having me on.

Jason Marsh (02:01)
Yeah, so today I'm excited because I really love talking about business finances. And as I mentioned, you recently wrote an article talking about the top four, there's so many of them, but the top four KPIs that a law firm should be focusing on. And you mentioned that to get to that, you all analyzed over 60 different KPIs to figure out what are the ones that are gonna have the biggest impact on law firm performance. And so now we have...

the final four, right? It's arrived. And so, yeah, so I'm to dig into this with you, but before we get into those specific final four KPIs, can we talk a little bit about high level? Like firstly, what the heck is a KPI? Why are they important?

Terrell Turner, CPA (02:29)
Yeah.

Absolutely, yeah. So I mean, when it comes down to this whole subject matter, of KPIs, I think you hear the term used a lot. And, People are often saying , hey, I need to know my KPIs. And I always stop and ask people do you know what that, what does that actually mean? And they're , the KPIs, the numbers that are important. And I realized , we've kind of glossed over what the words actually mean. And I always tell people it means.

the key performance indicators. Like These are the things that give you an indication of how well are you doing? And it always leads to, all right. So if I'm thinking about my key performance indicators, what performance are you trying to measure? And what ends up happening is Most people are like, well, the numbers I've been tracking don't align with the performance that I've been trying to measure. And I'm , that's why we should probably stop and actually understand -

What is a KPI? It is something that helps you measure a key performance that you wanna pay attention to.

Jason Marsh (03:42)
Yeah, it's such an interesting thing, right? We all have heard the saying, right? you can't manage what you don't measure. And so when you're thinking about the KPIs, we're just talking about just numbers, right? But The numbers that we think are important that are going to tell the story of how the business or the law firm is really doing. right?

Terrell Turner, CPA (03:59)
Absolutely, absolutely. I mean, and I think that that's something that, most people, they overlook how valuable that is because, mean, when you're in the middle of running a law firm or running any type of business, I mean, there's so much going on that you literally need the numbers to kind of help you kind of figure out , where am I in the process of this massive, list of tasks or chaos that I'm trying to manage?

And I think the numbers kind of help you understand , hey, are we headed the right direction or hey, are we headed down the wrong road? And I always compare it to things , let's say if we're driving somewhere. I mean, If you're driving somewhere you've never been, you use the road signs and the mile markers to kind of tell you, are you going the right direction? And I tend to look at key performance indicators that same way as these help you understand.

Are you going in the right direction? Or, hey, did you get off track? And if you did, , okay, all right, we need to make some changes so we're not going too far down the wrong road.

Jason Marsh (05:03)
Yeah, I think the road is a good analysis and just to throw another acronym, but one more off, it's your GPS. It's are you on track to get wherever it is that you're trying to go? And I know in reading your article, you mentioned that a law firm's finance strategy really should be a reality check and something that's going to be a compliment to their overall business strategy. Right. So you can really take the temperature of what's actually happening because

I imagine a lot of business owners think one thing is happening and a completely different thing is actually going on in various facets of their business.

Terrell Turner, CPA (05:34)
Hehehehehe

Absolutely, I mean, cause I think, to your example, if you look at it a GPS and If you put in the wrong destination to the GPS, you may be following the instructions of the GPS, but if you put in the wrong destination, you're not gonna end up where you wanna be. And I look at it the same way for the business. Like If you build your KPIs around the wrong objective or the wrong goal,

you could be following the KPIs, but never end up where you really wanna be. And I think that's why I recommend people take a step back and say, all right, what is your overall goal? Like, where are you going? Because that's really gonna help us determine which KPIs really are the ones you should be paying attention to more than others. Now, there still will be some key performance indicators, I think, that do apply in general, but.

I always say is , as you get closer to your destination, if you're following the GPS, usually if you're on the long stretch of the road, GPS tells you, hey, keep straight for the next seven miles. But as you get closer, you do need to listen to more of those precise left and right turns, or you won't end up at the right place.

Jason Marsh (06:48)
Yeah, no doubt about it. And in your experience, because I do want to get into the specific final four, but before we do that, what are some of the common destinations or goals that you find that law firm owners want to achieve? I mean, I would imagine, we want to increase revenue, cut costs, those type of things. But what do you see from where you sit and the folks that you're working with?

Terrell Turner, CPA (07:11)
Yeah, so I agree with you. In general, they tend to say things , we wanna increase our revenue or we wanna make more money or we wanna cut costs. And I always to dig in a little bit more specific and I always ask them questions , you were to increase the amount of money that you have coming in, what are you gonna do with the money? Let's really put some real meaning behind this. And some have said things , hey, well, you know what?

we wanna offer a paid internship to people from underprovigerious. Okay, what are the finances for the business need to look for you to be able to afford that? Or some say, hey, we wanna increase the amount of pro bono work we're doing. Okay, what are the numbers need to look so you can afford that? Or some law firm owner say, hey, I just don't wanna work as hard as I've been working for the last 10 years.

Jason Marsh (08:00)
Yeah.

Terrell Turner, CPA (08:02)
Like I want a little bit more balance, but I don't want to take a huge pay cut. Okay, what is your business need to look financially for that to be able to happen? Or some may say, hey, I just want to take, a three week vacation for the first time ever. And , okay, all right, how do we get your numbers in the right position for you to be able to say, hey, that can become a reality. So I think when you look at things that thing, I would say goals that have

Jason Marsh (08:16)
Yeah.

Terrell Turner, CPA (08:28)
actual meaning to you, I think that's where you can really start to say, all right, now we're ready to develop the right KPIs that can point to that. because a lot of times when people come to me and they say, hey, well, we want to increase our revenue. Well, if I showed you how to increase your revenue by $1, would that be enough? And they would be , well, no, not really. So I'm , we need to get a little bit more clear. What are we doing here?

Jason Marsh (08:46)
Great point.

Yeah, I love that. because yeah, people have very broad based ideas, right? And I think when you think about goals, The more specific you can get about what the goal is, and all the things you talked about, then you can maybe create a much clearer path on how to get there. So with that, why don't we jump in and talk about your final four? Again, you went through tons of KPIs, right? The businesses can measure and you guys went through 60 plus and you came up with, okay.

Terrell Turner, CPA (09:11)
You

Jason Marsh (09:18)
Obviously, this isn't a one size fits all type of equation, but for most law firms, these are going to be the top four. So you want to start with the one seed, average case value.

Terrell Turner, CPA (09:28)
So

can I give a little bit of context? mean, since we're in the theme of March Madness, I will say, I have so much more appreciation to people who fill out brackets because when my team came up with the, they came up with the idea of this, they were , hey, well, it's funny thing is.

Jason Marsh (09:34)
Yeah, yeah, let's go. Yeah, give context sort of what you guys did.

Not easy.

Terrell Turner, CPA (09:50)
my team, marketing team is not in the US. So March Madness doesn't really mean as much to them. They were just looking for trends and they, in a meeting they brought up, said, hey, what is this March Madness thing that happens? Like, is it, is it really a big deal in the US? And I said, well, yeah. And they were ,

Jason Marsh (10:06)
Yeah, that's a fun, yeah, right. Is there anything going on in March besides

March Madness?

Terrell Turner, CPA (10:13)
And they were just , how does it work? And so I , I'm explaining them how a bracket works. And it's , you can see the glaze over look. And so What we did is we came up with a list of 60 plus KPIs. Like, hey, we did as much research as we can reading articles. We use, AI. We, just thought through all of our clients that we work with and we put together a really long list and said, all right, here's these long list of all of these KPIs.

And then what I did is based on , coaching calls based on analysis, meetings, different, conversations that I've had and different webinars that I've taught. we said, okay, all right, out of all of the, all of all the clients and the law firms we've talked to, if we had to say, okay, right, which ones would make it to, the sweet 16, which ones are, more important, which ones would make it to the elite eight.

And then it's getting down to the final four. And so that's kind of how we went through that process of starting with this long list. And we narrowed it down because you said, every KPI plays some level of value and depending on people's strategy. But When we thought about these, the final four, we really looked at it and said, okay, out of all the firms that we've talked to, the research we've done, which ones really moved the results for a firm? And so...

The first one we came up with was the average case value. And so.

Jason Marsh (11:37)
Wait, so hang on one second. I got to know though,

did you actually put together a bracket of 60 and then have head to head matchups and figure out which, KPI was going to advance in a, know, sweet 16, the elite eight and to get to this final four.

Terrell Turner, CPA (11:53)
We did, we did. was a fun exercise for the team because I will say, cause a lot of my marketing team, I had to explain what the concepts were. And so what we would do is we laid out everything all 64 and we said, all right, who's playing each other in the first round? And then we laid it out that way. All right, who makes it to the sweet 16? All right, who's playing each other in that round? And then...

I'm explaining and the good thing about my, my marketing team not having an accounting background is, I, I would explain to them what that KPI meant. And then we can talk about , how impactful do you think this would be to your business? Um, and then we can kind of see, all right, which one really drive results. And then, I mean, because I said, we, do have law firm clients. I can go back to all of our clients and I can look across, okay, which KPI is a driving results.

And that's kind of how, mean, it took us about a week to kind of figure all of this out. But yeah, we did, developed, We started with the big bracket and then we boiled it down to the Sweet 16, Elite 8, and then the Final 4.

Jason Marsh (12:58)
I would love to see that bracket. I would just love to see the head-to-head matchups and , who won, who advanced. Were there any big upsets that took place in the tournament?

Terrell Turner, CPA (12:59)
Hahahaha

You know, I will say is the big upsets happen when you got down to the elite eight, I mean, , for example, number of new clients went head to head with average case value. And so we kind of looked at that and said, okay, all right, let's really think this out. Like this firm was managing the, number of new cases, this firm was managing average case value. And we did, I mean, there was some math that we had to do in there to figure it out.

But ultimately, average case value won out over total new clients.

Jason Marsh (13:40)
makes sense, right? Quality

versus quantity. mean, that's, yeah. So yeah, I'm curious to see as we get into these, if there's any Cinderella stories in the making. mean, average case value comes in at the number one seed here. yeah, so let's talk about that one, right? So what should law firm owners and law firm leaders be thinking about when it comes to case value specifically?

Terrell Turner, CPA (13:43)
Mm-hmm.

Yeah.

Yeah, so when it comes down to average case value, simply what that means is, is if we look at, you you can take any time period, let's say, for example, we're taking the last two years, let's look at all the cases that close, what was that, how much was the average value for those cases? Like how much revenue did those cases produce on average? And then when we start to look at that, one of the things that it kind of helped us understand as we analyze different businesses is if you have a really low,

case value, meaning your average case is let's say, you $500. You're gonna have to do a lot of volume for your firm to, to reach financial stability. But if we looked at and we saw that, hey, the average case value is , let's say, $12,000 a case, you don't need to do as many to really drive results in your business. And what we saw is that firms that were monitoring their average case value,

they were being pretty smart about where they were spending their time because I would say the number of firms I saw running into cashflow problems, whenever we analyze and dig into the details and we look, we're , you're spending 80 % of your time on the lowest case values. I'm , that's why you're running into cash problems or that's why it seems you're working constantly with no chance of taking a vacation, no chance of a break because you're spending all of your time.

on the lowest value cases, but when they started making a shift to say, hey, what if we started shifting some of our time and energy to higher case values? It became a huge, I guess you say, winning strategy for their law firm.

Jason Marsh (15:39)
Yeah. And is that something you see? Because I feel I've seen this in my own businesses where some of the best clients, they're fairly easy to deal with and the lowest paying clients can be the biggest pains in the asses and have most unreasonable expectations. And as you say, you're then mired in this stuff for no money versus getting a higher value project or a case that you're now you actually have good profit margins.

Terrell Turner, CPA (15:51)
You

Jason Marsh (16:04)
and you're compensated well for your time. Is that something you see happen a lot and that law firms should be actively aware of, not just having a low case value, but how much time are you actually spending on this stuff?

Terrell Turner, CPA (16:18)
Absolutely, I mean, because I see it a lot when we will do a productivity analysis and we'll look to see, okay, all right, let's say if it's a firm that's measuring billable hours, we'll say, okay, all right, how many billable hours did you get last week? Okay, all right, what types of cases were those billable hours on? And you look and you see they're spending most of their time on the lowest value cases and I'm , this is gonna turn, if it hasn't already become a problem, it will become a problem because, the people that you,

probably should be working with or the people or the types of clients you want to work with, you're not working with them. So it's your staff is getting exhausted because they're dealing with the biggest problems and there isn't as much of a return there. And even for some firms that try to create a bonus structure, I'm , they're not gonna earn their bonus because they're spending so much time on the lowest value cases. So eventually the staff is gonna be exhausted.

Like the firm is gonna be exhausted on a cash standpoint. So I'm just , yeah, average case value is one that when we looked at it, we were , yeah, this one is definitely a number one seat.

Jason Marsh (17:24)
Yeah, I could see that. And another thing that I think is great when a firm really understands what their average case value is and is targeting a specific type of client or a specific type of matter that's worth a certain amount. Now they can have a better understanding of how much can they invest in marketing and sales efforts to acquire those type of cases, right? Because I know in talking to...

attorneys about, they're more, what is that type of case worth to you in terms of top line revenue and then profitability further down? And then based on that, how much realistically do you want to spend to acquire more of that business and do it at scale, right?

Terrell Turner, CPA (18:01)
Absolutely, because I think that that is something that I see a lot of firms struggle with when it comes down to their marketing is, know, they hear these, these, I guess you say ads on whether it's social media or they go to conferences, you need to invest in your marketing. And I'll ask the question , okay, all right, how much can you afford to spend on this type of case? And they have no clue. And they're just , well, we need to spend whatever it takes to get the case. And I'm , no.

that might not work out well for you. I'm , you need to understand , what does your budget need to look , per case. And then also it helps you kind of adjust your strategy because I've talked to several, law firms that say, okay, all right, if your average case value is, let's say $3,000 on this case, that gives you some kind of parameter. Now you can go back and have a conversation with your marketing company you hired and tell them, hey,

this case is worth $3,000 per case. And then that way it gives the marketing company some kind of target for them to kind of operate within because if they don't know what your average case value is, they don't really have something to compare against or to really help you think strategically to say, hey, well, if this case is worth 3,000 and this case is worth 1,000, both of them cost the same amount in marketing.

we should spend our time on the one that's more valuable as opposed to the lower cost one. And I think when people can really not only understand their average case value, but also share that with their marketing partners and their marketing companies, I think you can get a better marketing strategy that's actually gonna lead to better financial results as well.

Jason Marsh (19:43)
Yeah, no question, right? Because just at a minimum, you can start to figure out , what is your return on the investment? If you understand what it's costing you to acquire it, you understand the value of that case, and you can figure out the delta and just make business decisions, right? For your law firm. So in terms of , we were talking a minute ago about working on, projects and maybe not being the best project spent. How does all of that and understanding and how that ties into case value affect?

your cashflow and your cashflow conversion cycle. know that, we're going to get into some other KPIs that touch on this, but I think cashflow is an important factor for any business, certainly a law firm that has a team and other expenses in place. How does it impact that?

Terrell Turner, CPA (20:25)
Yeah, absolutely. So I would say, let's say if you're, you have two types of cases. One case is worth $3,000 per case. The other case is worth a thousand. I mean, the reality of it is, is you only have a limited amount of time in a day. And let's say if both cases take 10 hours to complete. If you only have 40 hours in a week, you can only do a max number of four cases. So it's , do you wanna spend...

your entire week working on four $1,000 cases, which means you're gonna get $4,000, or do you spend that time working on four $3,000 cases, which means you're gonna get $12,000. And so it's immediately you can see the big differences , hey, do you want $4,000 a week or do you want $12,000 a week? Like which one is gonna help you hit your goal faster? And of course it's not gonna...

Jason Marsh (21:13)
I 12. I think

12 is, that for me sounds better than four, but you're the CPA. You tell me if I'm right.

Terrell Turner, CPA (21:20)
And I always tell people it's , of course it's not gonna work out at his exact math that. But that's the concept of what you're trying to manage what average case value is. Like we can really draw a line to say, okay, do you spend your time on the thing that is gonna bring you the least amount of money? Or do you spend your time, more time on the thing that brings you more money? Now, of course, there's gonna be a little bit of a mix there. But even if let's say the math worked out to,

Do you want $4,000 or do you want $8,000? Like you can still see there's a clear winning strategy in there. And I think that's how the average case value plays a role. Like it's gonna judge how much money do we have coming in on the top line can be directly tied to where are we spending our time.

Jason Marsh (22:08)
Yeah, yeah, it makes a lot of sense. And I want to ask you, because what about an attorney that says, hey, we want to do some pro bono work? Or maybe they say, hey, we would accept the lower fee matter, but maybe around the parameters that it's commensurately, we're going to do less work, right? And then that can still maintain the $4,000 matter can be just as profitable percentage wise as the 12,000. So how do you how do you juggle that to make a decision on?

Is it always just go for the highest price matter? You never do pro bono. Anybody that's got a smaller matter that even is profitable, you ignore that. What is your approach to that?

Terrell Turner, CPA (22:43)
Yeah, I think that this is where understanding our average case value can be very helpful in developing your strategy. And I always tell law firms, because I believe in doing pro bono work, if that's what you want to do. I always tell all clients, whether I'm doing coaching or they're a CFO client, a bookkeeping client, I tell them, say, hey, we need to just make sure that we're honest about putting your charity on a budget because you can't do an endless amount of pro bono work.

And let's say if this month you wanna do four pro bono cases, okay, how many higher case values do you need to allow you to be able to make room to do the pro bono? Because if you tell me , hey, Terrell, in order for our firm to survive, we need to do at least $6,000 a week. Well, then I will say is, well, you can't do 100 % pro bono work.

you probably need to do maybe two higher case value cases, and then you can make room for two pro bono cases. And I think as you start to see how that math works out for you, I think you can develop the strategy that makes the most sense. Or let's say, you you're , hey, well, we wanna, we really wanna help, people who need this low case value. Okay, what is the limit that we need to set so that mathematically,

this still makes sense financially because you can't just go all in and say, hey, we're just gonna give everything away for free. Well, your firm is probably not gonna be around for a long time if you're giving away everything free. And I think that's where you use the average case value to balance it out to say, okay, all right, how many of the high case values do I need to give me the freedom to do?

the pro bono work or to give me the freedom to do the lower case value work because I really care about the community that we're helping or the people that we're helping with those cases.

Jason Marsh (24:35)
Yeah, I mean, it sounds it's a luxury to be able to take those kind of cases in order to do it. As you said, you need to be able to offset that income for your efforts somewhere else. So Now I want to get into the number two seed, And this one's really cool, man, because I think this is a KPI that is, you you hear about a measure, I don't know, revenue profitability or how much time you're spending on something. this one.

for a law firm owner or leader, I think is not one that I've heard come up a lot, but I agree, because it gets to all of those things that is really important. that's employee ROI. So can you talk about that specifically and why employee ROI is important?

Terrell Turner, CPA (25:11)
Absolutely. So for people who aren't familiar, ROIs in this case stands for return on investment. And so what we're really trying to say is if we look at how much money we are spending on our employees, the next question we ask ourselves is, how much money are those employees generating for the firm? And then when you compare those two numbers, you can see , hey, are they paying for themselves? Is it worth it? And I think the reason why this one becomes very, very important is because

when you are running a business, I think you run the risk of just trying to get rid of headaches. And I've seen so many firms do this where they're just hiring more and more people because they're , I don't want to deal with that. And they're just hiring more and more people.

And it's , in one hand, it seems you're productive and you're getting stuff done. But if your cost of the employees exceed the amount of money that they're bringing in, eventually you're going to run into a problem.

And so I think you do have to kind of balance and a general rule of thumb that I tell, law firms is when you're hiring on your legal team, your legal team should be producing about three times what they cost you. So if this person costs $10,000 a month for this lawyer, they should be able to produce at a minimum $30,000 in legal fees a month. And the reason why I say kind of that third is because,

They're able to produce enough to cover their salary plus cover overhead and other expenses for the firm. Because when you're running a firm, you do more than just pay for your employees. There's all the computer software. If you have a lease for the facility and then there's what all the malpractice insurance, the business insurance. There's a bunch of other things that have to go into running a business. So you do wanna make sure that

You position your employees to where they can earn enough to cover their salary plus contribute to all the other general costs that you need when it comes to operating the firm.

Jason Marsh (27:11)
And is, and is so, that formula, sounds it's, it's a three X, whatever you're paying for somebody, whether you're doing that monthly or annually, they need to generate three X, whatever you're, you're paying them in expenses. And now is this specific to, delivery level people that are at the service level versus someone that might be an administrator within the firm that, that is not directly producing any revenue. How do you work that or, or.

Terrell Turner, CPA (27:36)
Yeah,

Jason Marsh (27:37)
Go ahead.

Terrell Turner, CPA (27:38)
so I would say, mean, that 3X is more specific to people who are in delivery, because those are the people that are gonna generate revenue. And the reason why you would say they generate a third, because if you do have some people in administrative functions, they're not out there working with clients, they're not generating revenue. So your delivery team has to bring in enough revenue to cover their salary plus the administrative and all the other.

general expenses for the firm. Now, I will say a good scenario for I've seen for some firms is they start giving some of their administrative team some revenue producing responsibilities. Like if that makes sense for your firm, then I always say is , well, this person is spending most of their time on administrative. Maybe that employee is more a one X or something that. Because it depends. Like if they're

100 % focused on delivery, I would say minimum a three times what you pay them. But if more of their function is internal and doing administrative things, you may not necessarily apply that same employee ROI target for them because they don't actually produce revenue.

Jason Marsh (28:51)
Yeah, and I this one in particular because it really gets to the heart of the service business model, which is you put it, you're saying take what they're costing you, multiply it times three, but the way that breaks down is you take your top line revenue, A third of that's gonna go to what you're talking about, delivery of the service to pay that employee plus their benefits. The next third, that's gonna cover the overhead, all those operational expenses, you know, .

whatever insurance, computer's office and things that, even administrative staff. And then that last third is your profit, your profitability, which some of which you're probably gonna wanna reinvest into the business as future growth. So I think it's a nice way to get to that without going, this is revenue, gross profit, net profit, OPEX, you know, all that stuff. But just to break it down in a really simple formula, you know, one third pay, one third overhead.

Terrell Turner, CPA (29:37)
You

Jason Marsh (29:44)
one third profit. It's really, it's a pretty simple way to think about it.

Terrell Turner, CPA (29:49)
And that's a great way for people who may say , hey, I'm not a numbers person or hey, numbers make me nervous. You do wanna simplify it as much as possible because as a attorney running a law firm, you probably don't have all the time to just sit and dig into every single number, look at every single ratio. So you do need to boil it down to , hey, what are some simple indicators that I can look at to see, are we headed in the right direction? Now, if you look at,

Jason Marsh (30:15)
Yeah, it's.

Terrell Turner, CPA (30:16)
If you look at employee ROI and you realize , hey, we're paying our employees X and our revenue is only two times that, then it's just , okay, all right, we should probably look into this a little bit more to understand why, or are there some things we need to make adjustments on to improve this? And I think that that's the whole point of an indicator is to give you a sign of, is this going in the right direction or do we need to look into this more closely?

Jason Marsh (30:42)
And is that also in that same note, a way to really get a sense of employee productivity in terms of, okay, this is what we're paying you. should be billing out three X of that number. And if they're falling short, maybe is that to say, there's, there's an issue in there that we should look at and figure out how do we, how do we get them to that three X or better level, or what do you do if they can't get there? You just can them.

Terrell Turner, CPA (31:05)
Yeah, I mean, I think it does bring up that very valuable conversation because I feel when you become a leader of a business, part of your job is to make sure you're asking the right questions to guide the business where it should go. And I think that KPI, if you notice that, this employee isn't generating three times what they cost the firm, then you look at it and say, okay, right, is this a sales and a marketing problem? Meaning.

We don't have enough cases to allow that person to achieve that goal. Like they're doing the best they can, we just don't have enough cases. Or is this a productivity issue, meaning , hey, they're spending their time on too much stuff that we can't bill for. Then it's , all right, we need to have a different conversation there. How do we shift some of their time to things that we can bill for? And you end up seeing this a lot with firms that do flat fee billing because

This is where, again, you go back to that average case value and you ask yourself, okay, all right, what types of cases are they spending their time on? Because if they're spending all of their time on the lowest value cases, their employee ROI number is probably going to be low. And so I think that's where you help them learn, all right, I need you to work on four of these types of cases and limit it to three of these types of cases. And I think once you start having those type of conversations,

you can really develop a strategy. And after you've gone through all that and you say, okay, this person, we've made some changes. This person still is not achieving the target that they need to achieve. Then you have to have the honest conversation is, is this person the right fit for our team? Like, do we need to make a different change? Like, hey, are they in the wrong type of role? Or hey, maybe this person just isn't the right fit for our organization.

Jason Marsh (32:55)
Yeah, it's probably a tough thing to realize, it is nice to just at least have that shorthand that you can very quickly see as the contribution they're making to the broader firm. Is it working well? All right, let's get into seed number three, Are you ready for this one, Terrell? All right, average weekly revenue. So let's talk about that one. Why should we be looking at weekly revenue instead of monthly revenue or annual revenue? Why weekly? Why not daily, hourly?

Terrell Turner, CPA (33:11)
Let's go.

So the reason why I think we came down to this one, because this is, I think this entire bracket where we kind of looked revenue and expenses were constantly competing in that entire bracket. And the reason why this one won out is because when we talk to a lot of law firms and we look at the decisions that they're making, a lot of times they're making decisions week to week. And for example, payroll comes up every two weeks.

And when payroll comes around, the question we're asking is , all right, are we gonna have enough money to make payroll? And so what we found is going, instead of trying to look at just annual revenue, because it makes no, I guess you say, it doesn't benefit you if let's say, if payroll is due this week, winning a big case three weeks from now isn't gonna help you make payroll today. So.

Jason Marsh (34:05)
Eugh.

Terrell Turner, CPA (34:14)
we had to really look at it and say, okay, all right, how on average, how much money is coming in each week? And is that enough to cover, I said, your core expenses, the things that we know we have to really cover? And that's why in that very first example I was saying is, let's say, hey, if your firm, your expenses are about $6,000 a week. Well, we need to know, do you have at least...

that much revenue on average coming in to know that, hey, when expenses come up, you're gonna be able to cover those expenses because I think you see this with a lot of firms that struggle with this, ones that do litigation work or your PI firms on contingency work. It's , it's great that you closed a million dollar case, but if you go completely zero for the next three months, it's just ,

Jason Marsh (34:58)
Okay.

Terrell Turner, CPA (35:06)
you're gonna have to get money from somewhere. And so that's why we tend to look and say, okay, right, how much money is coming? Are you able to generate on a weekly basis on average to make sure that, hey, we can plan out to say, all right, are we gonna run into any issues within the next few weeks or within the next couple of months?

Jason Marsh (35:11)
Thank

Yeah, think this one is really good, right? Because I think it forces you to look at what your expenses are, especially as you say, if you're a firm that maybe has lumpy revenue where you get a big chunk come in, then you're waiting for a case to settle or something that. But you need to know what your cost on a weekly basis is and what your run rate is or effectively what your cash flow cycle looks and what it requires.

So I think that's really important. And then for the firms that maybe are not on the contingency side, but actually billing, how does that process, the billing and the invoice factoring this, you hear all the time how firms, they've got months of invoices that haven't gone out. Talk about that and why that actually is important, right?

Terrell Turner, CPA (36:06)
Yeah, I think this one is a very important one for firms that are in that situation because, you know, I find that a lot of firms that they may do the work, but they don't send out the invoice or they do send out the invoice and they don't actually follow up to collect. And so I would say is if the money isn't hitting your account, it's , yeah, you've earned the money. Like you've done your legal obligation to say that you have earned the money. But if you have an invoice,

or you haven't set up for automatic payment or you haven't followed up to make sure the invoices get paid, that money isn't hitting your bank account. I'm , and it's very, very difficult to pay your bills with an IOU from somebody else. It's your vendors want to be paid. They don't want you to say, well, we already did the legal work and we'll eventually get the money from our clients to then pay you. Like your vendors aren't gonna accept that.

Jason Marsh (36:50)
Yeah.

Yeah, right. And then is this a creature of just not having a good system or process in place or the fact that, some people just don't asking for money, right? They're happy doing the legal work, delivering great results and service to their clients, but feel weird saying, oh, can you pay me the $10,000 you owe me, pal? Like I sent you the bill or, you know, I haven't seen that payment come through. Like, how do you address that?

Terrell Turner, CPA (37:26)
Yeah, I I do think that it is a factor of that sometimes where people don't asking for money or that people feel uncomfortable when it comes to the subject matter of money. And I think that that can play out in so many different ways. And a lot of times that goes back to what your personal relationship with money is or what philosophy you have when it comes down to money. And what I often tell a lot of lawyers who are

kind of coming from that perspective of their relationship with money isn't the healthiest. And I always tell them, it's , hey, do you really care about the legal work that you are doing? And a lot of times they'll say, yeah, we really care about the legal work. And I'm , why is it valuable? And they'll tell me why they think their legal work is valuable. And then I'll say, well, here's the hard truth. If we don't get money in, you're not going to be able to continue doing the legal work.

So at some point we have to bring in enough money to allow you to keep doing the legal work. So I'm , we gotta kind of deal with this and making sure that there's enough money coming in so that you don't have to shut down your firm one day because there's no money there. And I think when lawyers who tend to have not the healthiest relationship with money tend to see it that way, they're , okay, all right, it's a necessary reality.

of me being able to provide this valuable legal services to people because I would say, if you don't wanna do that, then we need to go find you a very rich, very godparent who can keep funneling money in to keep this thing alive. If we can't do that, then we need to strike some kind of balance between just asking people to pay what they've already agreed to pay you. It's just, they just didn't know that they owed you that much yet.

Jason Marsh (39:15)
Yeah, and I think if, you say, you feel good about the service that you provided, well, the client, or you should feel that the client should feel good about compensating you for providing that nice level of service. I'd to talk to the ones or hear about the ones that when you asked them that question and said, no, they don't really care about the service they deliver. anyway.

Terrell Turner, CPA (39:31)
hahahahah

Jason Marsh (39:33)
In terms of tracking the idea of average weekly revenue, if somebody wants to implement that or do a better job, is there tools or time blocking specific time? Like what's a good practice to just try to start doing that? Is it just a matter of opening your accounting and just looking at it for 15 minutes a week, just start there?

Terrell Turner, CPA (39:53)
Yeah, I was, I mean, if you, if you have any type of basic accounting system, most of the accounting systems allow you to go in and you can run a revenue report. Let's say you can run it for the last three months and you usually can change a feature there instead of showing it by month, you can show it by week. And then you can just see, okay, for the last three months, what did it look ? Is it going up or down? And you can kind of see what that average number is.

once you look at it that way. Now, if you don't have an accounting system at all, you can still do it from your bank account. mean, it's gonna take a few more steps, but you can look at, okay, look at the deposits that came into your bank account. If you add those numbers up, you can kinda see, okay, all right, how much money is coming in over the past few weeks, so you can kinda figure out, , okay, all right, what does weekly money coming in look ?

And I think as you can kind of look at it that way, it helps. And then if you don't have a login for your bank account or you don't have an accounting system, but you're using a practice management software, you can go into your practice management software and at least in your practice management software, you can look at, all right, how much billable work are we doing on average per week? So you can always get to some version of this number.

to kind of give you a check to say, hey, are we doing enough legal work to actually cover our expenses so we don't have to unfortunately, close our doors and never open them again.

Jason Marsh (41:27)
Yeah, I bet it's sort of thing that when you start taking the time to look at it on a weekly basis, you're probably surprised in some respects of what you find, just anything, when you just start tracking it and you haven't been doing it before, you learn some things and you find that it's not quite what you thought it was. All right, let's get into seed number four. I'm not sure, okay, go back to seed number three.

Terrell Turner, CPA (41:45)
Hey, can I say one more thing on that, on the average?

So on that average revenue, one of the things that I've also found is, a lot of times firms will come up with these big grand numbers of, wanna be a, a, we wanna do half a million this year, or we wanna do, five million or whatever the number is. When we tend to break it down, , mean, if you just look at that number, if you've never achieved that number before, it looks big, it looks overwhelming.

But then when we break it down to a weekly basis to say, hey, here's what we need to make sure we're doing on a weekly basis to make sure that we're on track. If you go back to looking at your GPS or that driving example is, if you want to go from point A to point B, you don't just get there, in an instant. Usually you're kind of watching the key performance indicators along the way to say, am I headed in the right direction? And I think breaking that revenue down to a weekly basis,

it can take something that seems big and overwhelming, break it down into smaller pieces, and then give you a weekly kind of check-in to say, hey, are we still headed in the right direction? Because I think the firms I've seen that break it down that, they tend to be more successful or have a higher success rate at achieving their ultimate goal because they broke it down into a smaller component.

Jason Marsh (43:03)
Yeah, that makes a ton of sense. Yeah, I mean, any goal you ever have, it's a big one. You've got to break it down into manageable pieces that you can accomplish, but also track along the way, as you say, to make sure you're on following your GPS to get to the goal that you want to get to. Okay. Are we ready to go to seed number four, Terrell? What do you think? All right. cash on hand. Let's talk about that, right? We've all heard the saying cash is king, but in the context of running a law firm, ,

Terrell Turner, CPA (43:20)
We are!

Jason Marsh (43:31)
What do we need to take away from that?

Terrell Turner, CPA (43:32)
Yeah, I think the biggest thing is, I always tell firms is we wanna look at, how much cash do you have? First, let's look at your operating account. Like how much cash is there? I mean, because if we've looked at things , payroll is coming up this week. Well, let's quickly look. Do you have enough money to cover payroll? Because I think the amount of cash you have on hand is going to impact the decisions that we need to make. It's , if you don't have enough cash in there, then hey,

we need to go either find more cash or hey, you're gonna have to have an uncomfortable conversation with someone or some people about not getting paid. And it's just kind of if we're keeping an eye on that cash on hand, it allows us to notice a potential issue and give us time to actually do something about it. Because what you don't wanna do is you don't wanna get to payday and then have to go to your employees at the last minute and say, hey.

I know you've been working hard, we really value you, but we're not gonna be able to pay you this week. Like, that's not gonna be a fun conversation to have at all.

Jason Marsh (44:34)
do. And is there a do you have a quick formula or anything that you could just get a sense to make sure you have an adequate buffer, for all the expenses, particularly if you're looking at them on a weekly basis as you as you suggest.

Terrell Turner, CPA (44:47)
Yeah, so I always say is , if you're looking at it on a weekly basis, you one of the things that you can look at it, if what your average, expenses are on a weekly basis, for example, if we know that let's say your average expenses are $6,000 a week, and we look at your bank account and we say, hey, you have $12,000 in your bank account. Well, you have two weeks worth of CAF, expenses on hand, which means, hey,

if something were to happen catastrophic in the next two weeks, you are going to run into an issue. And I think what it does is it tells you that, you have a two week kind of a 14 day buffer on your hand. So you need to get to work. Now, let's say if you look at your bank account, you're , well, we have $36,000 in the operating account. Well, you have six weeks worth of cash on hand. So.

If you wanted to take a week long vacation or let's say you wanted to give the team more time off, which means they're not gonna be doing as much legal work that week. Like you got enough cash cushion in there to probably allow you to be able to do that without completely destroying your business or running into any serious issues. And so I always tell people is look at the cash balance that you have on hand and then compare it to your average weekly expenses.

because that'll tell you how many weeks worth of cash do you have on hand because that's gonna impact some of the, or let me say that will impact your comfort level with some of the decisions that you need to make in your business.

Jason Marsh (46:16)
Yeah, you can really see how all that ties together. Before we're talking about understanding what your weekly revenue is, but really to get to the heart to make sure you understand what your weekly expenses are. And here you are, okay, cash on hand. How many weeks do we have before we're out of cash? Do we need to do a better job getting the billing out, collecting on receivables, following up, or just simply getting more work or cutting other expenses?

All right, cool. Well, I mean, I think with these four, we've really kind of gotten to the heart of what in your view it is to build a really winning KPI strategy. And so even, looking at your bracket of 64 KPIs, really it boils down to , think you point out a few different things, right? You want to increase your profitability. You want to make smarter hiring decisions. And in all of that, keep tracking your expenses so you can avoid

cash crunch. Let me ask you this. And I don't know if we could do this real quick, but we have a final four. What if we put the one seed average case value up against the four seed cash on hand, who wins that matchup? What's the more important one? Average case value cash on hand.

Terrell Turner, CPA (47:21)
I would say

I would say cash on hand. I think cash on hand will win that matchup. And the reason why is because I think that , you could probably survive by doing a few lowercase values, but you absolutely cannot survive if you run out of cash.

Jason Marsh (47:27)
Alright.

All right, now employee, number two seed versus number three seed, employee ROI, tracking that or keeping track of your average weekly revenue.

Terrell Turner, CPA (47:49)
Ooh, that one's a tough one. That one's a tough one, but I would probably pick average weekly revenue to be the winner in that case. think employee ROI is important, but I think average weekly revenue is gonna win that one.

Jason Marsh (47:51)
Just match up here, I know.

Alright.

Okay, cool. now this is for everything right here. Cash on hand. Wait a minute, what did we say? I think I lost track.

Terrell Turner, CPA (48:09)
You

on hand

so cash on hand versus average weekly revenue in the finals.

Jason Marsh (48:20)
Okay, so the three

and four seed, okay, so the one and two seed get knocked out. We have a final of a three and four seed, average weekly revenue, cash on hand. Who's taking the trophy?

Terrell Turner, CPA (48:26)
Yeah

I think that in this one, I mean, it would be a very tough matchup, but I think from what I've seen for most firms, I think the cash on hand is probably going to take the championship on this matchup.

Jason Marsh (48:44)
Cash is king, baby, right? It doesn't change.

listen, mean, these are all great KPIs. There's no shame in losing out in the final four. These guys have all been good. All right, so before we start wrapping up, I want to...

So If you're a firm owner or a leader and you want to take some action based on, KPIs and the things that we've talked today, you want to do a better job tracking, analyzing, improving all of your law firm KPIs, what do you recommend as a way to get started?

Terrell Turner, CPA (49:15)
Yeah, I mean, I would say, I think The first thing is go back and listen to this podcast because although we've had some fun in the conversation, there's some really important things that we've talked about in this conversation. I think just to kind of make sure you understand the value of KPIs and not only just, tracking them, but how to actually use them to make decisions. The next thing that I would say is if you have a bookkeeper already, what I would tell people to do is,

send this episode to your bookkeeper and say, hey, can you help me develop these four KPIs that they talked about? Because I think the relationship that law firm owners have with their accountant is probably one of the most underutilized relationships because your accountant has access to all of the numbers, well, pretty much I would say all the numbers that are needed to calculate these KPIs for you. And a lot of times would...

know, law firm owners don't do is they don't ask their accountant that they're already paying , hey, what would it take for you to help me keep track of these? And I said, some of them will probably just say, hey, we can just include it with the service we're already providing to you. And if that's the case, that's a win-win for you because you get to look at these KPIs on a regular and it didn't cost you extra money.

Now, if it will cost you a little something extra is, you you have to weigh, okay, all right, how much would it cost? And if it's too far out of your budget, you can ask your accountant, , hey, can you show me how to calculate these things until you get your firm to a point where you can afford to pay them to do it for you? And I think because if they can show you, maybe you have to pay a consult fee, but if they can show you how to get these numbers on your own,

and show you a quick process that you can go through to keep track of this, that's gonna give you the indicators that you need to make sure you're moving your firm in the right direction. And I think those would probably be the areas where I would start.

Jason Marsh (51:13)
Yeah, I love this. And I think it's quite simple. And I the idea of just get somebody else to do it. Somebody on your team, an admin level person or your bookkeeper account. And just ask them, you said, go through this podcast or figure out what KPIs you want and say, can you just send me these on a weekly basis? And it doesn't even have to be a full-fledged report. You could be very specific about what you want to see. How much cash is in the bank? What's our weekly expenses? What's our buffer?

what's just go through all of those and then just to have your finger on the pulse of it. And of course you can go deeper in any of those things, but I think that's the way to go. Well, let me give you a quick plug here. So I'm here and I'm really grateful that you're here. Terrell Turner, we're talking about KPIs that really drive law firm growth and performance and you really can't live without them. So you can find Terrell at

TLTurnerGroup.com. There you can also subscribe to his newsletter, which I did, which is how I found out about his awesome final four KPIs, but it's called Law Firm Success. Again, that's TLTurnerGroup.com. And another thing that Terrell's offering that I think you should take advantage of is a free consultation. And you can take a look at how data analytics, a law firm CEO or bookkeeping services to...

to help you just get your arms around all of these important numbers and start making them work for you as opposed to just thinking what they are or them being some a mystery. And lastly, you can connect with Terrell on LinkedIn. I'm gonna be including the links to all of this stuff in the show notes, including I think a link so that you can book your free consultation with Terrell. anything to add?

Terrell Turner, CPA (52:49)
Yeah, I would tell people, mean, is that finance can be pretty scary. You KPIs in general can be pretty scary and it's not something that you need to master overnight. And I always tell lawyers is be patient with yourself and just give yourself the opportunity to have the right conversations to help you gradually get better at understanding KPIs and how they impact your decision making for your business.

Jason Marsh (53:14)
Yeah, because I think once you do that, you'll be pleasantly surprised by the things you're learning. And it's just , it's almost watching a sports match or a team that you love and keeping track of the score of the game or the standings and what they need to do to move up. So it's , yeah, this is your own practice, your own business, and you can do all those things. Anyway, Terrell, thank you so much for joining me today. This has really been an enjoyable and fun conversation. I'd love to have you back again. We can find another, maybe another four KPIs or.

or some other topics around finance and accounting for law firms. Thank you. Thank you so much.

Terrell Turner, CPA (53:47)
Hey, thanks for having me.

Jason Marsh (53:48)
Thanks for listening to the Alpha Lawyer podcast. I'm your host, Jason Marsh, and I appreciate you joining us today. If you enjoyed this episode, please subscribe, leave a review, and share it with other lawyers who might benefit. You can find more resources and insights on building a thriving law firm at alphalawyer.io or the Alpha Lawyer YouTube channel. Until next time, keep building the firm of your dreams so you can live your best life.