Here’s why it’s important for your law firm to calculate utilization rate


For a law firm to successfully calculate its revenue, it is integral to calculate the utilization rate first. This is a common scenario in the legal industry as a law firm’s revenue is calculated by the billable vs. non-billable hours of lawyers. This allows your law firm to measure the ongoing productivity, making utilization rate one of the most important KPIs for law firms to track.

Strategically, law firm’s utilization rate is calculated by counting the billable hours and then dividing it by the actual number of hours worked per day. Take for instance that your law firm has a 31% utilization rate, this means that your firm has managed to easily secure 2.5 billable hours in a typical 8-hour working day, which is statistically the average utilization rate for law firms according to the 2021 Legal Trends Report.

However, it is extremely important to note that your law firm’s calculated utilization rate does not determine an attorney’s performance. We must not forget that lawyers and legal practitioners are doing their complete part in helping others with their legal matters, and that a revenue-related KPI does not quantify client satisfaction and client-centered experience. Utilization rate is merely used to evaluate the running operations of your firm.

As per the recent poll that we conducted on our social media platforms, 88% of legal practitioners think it is extremely important for law firms to calculate utilization rate, whereas only 11% disagreed with it. This implies that the importance of calculating utilization rate is being recognized gradually.

In simple terms, calculating utilization rate would provide lawyers and legal practitioners an accurate insight of important data and information, based on which they can make sound business decisions. For example, this will give them an overview of what legal service can be of maximum profitability potential.

Now that it is clear why it’s important for law firms to calculate utilization rate, let’s take a look at some of the ways to increase it effectively – the first and foremost factor to keep in mind is to track your law firm’s utilization rate. Once this has clearly been recorded, it is necessary to set a calendar reminder to have it recorded regularly without any delay, which can be weekly, bi-monthly or monthly as per your goals.

Secondly, it is mandatory for law firms to set a dedicated goal. For example, if your goal is to acquire a utilization rate of 45%, you should record this and set your tracking notifications accordingly as per the goal.

Additionally, time tracking is directly proportional and as important as law firm KPIs, which means they must go hand-in-hand. Time tracking should be prioritized especially if you have realized the importance of tracking utilization rates.

Do keep in mind that tracking your time, billable hours and your firm’s utilization rate has never been easier – all thanks to LegalTech and the emergence of legal practice management systems. Automating your law firm with a digital cloud system means you will reduce the amount of time you usually spend on non-billable work, which in-turn will help lawyers achieve more productivity and efficiency that will create a unique client-centered experience as well.