In today’s rapid changing market, the greatest asset of successful firms is the strength of its talented workforce.  Employees must be motivated, trained, retained, and effectively managed to ensure they help your firm increase its profitability.  Many times, firms only measure the profitably per partner as a key performance indicator of profitability.  However, there is a growing trend in the market to measure employee profitability.  The more profitability your employees are, the more profitable their office will be, and in return, the more profitable the partners will be as well.

Another key metric is measuring the profitability by client.  Not all clients are the same and many of them have different requirements which requires different resources to be allocated to them. Measuring profitability by client ensures that your firm has a quantitative measure of profit by client, especially ones which are considered strategic.

So why not measure more than just profitability per partner?  The answer is that many firms have the data but not the software tools or the expertise to calculate the profitability by client or employee profitability.  There are tools which can help calculate the profitably by employee which takes into account both direct costs (Salaries, bonuses, etc.) and indirect costs which can be allocated to each employee.

Here are 3 reasons why measuring employee profitability and profitability by client can be a valuable instrument in measuring the performance of your firm:

  • Hiring: By measuring employee profitability, your HR team can gain insight on the types of employees that are more profitable. Whether they are from a particular law school or class year, this insight can help your HR team with looking for the right candidates based on the profitability
  • Accountability: By ranking employees based on their profitability, your employees can have visibility on their performance and where they rank with their peers. This information will help motivate some employees and also provide management insight on the underperforming employees
  • Resource Allocation: By measuring profit by client, your firm can re-allocate resources on low profitability clients if they have the same skillset but improve the profitability of the client