A recent NARCA conference session addressed the subject of Collection Law Firm Profitability and the variety of metrics needed to measure it. The firms with the best handle of these measurements are in control and making smart and fact based decisions about their businesses. The basic formula is simple: Revenue - Expense = $ PROFITS
Sounds straight forward but while revenue tracking is straightforward in most cases, expense tracking is more complex and requires more data. The final goal is for any firm to be able to measure all of the data point variables it needs. This would allow any firm to:
1. Track revenue by Client
2. Track all expenses by client by category of expense.
3. Determine most profitable clients (Revenue - Expense = PROFITS)
4. Identify which clients provide the best and most accurate debtor demographic information as this saves the firm time and money to scrub accounts
5. Identify which clients scrub their accounts for bankruptcy and death so you do not waste time and money or encounter compliance issues
6. Identify by client how long it takes you to get your cost paid
Having these answers allows a firm to fully understand which clients are profitable and know why the other clients are not. This enables the firm to make decisions that impact their bottom line. How to achieve these goals means being able to track lots of data. For example, expense tracking deals with the following:
1. Every letter must be counted and an expense factored for postage and handling.
2. How good is the debtor demographic information received from your client/debt buyer/creditor?
3. If the address or phone is bad then you waste postage, incur return mail processing and your collectors are wasting time calling bad numbers.
4. If the demographics are poor you incur additional SKIP costs for address and phone numbers
5. What percentage of the new placements comes with POE information?
6. What percentage of accounts becomes unworkable due to bankruptcy or death within 30-60 days after placement. These should have been scrubbed out by the client before they placed the debt with you. This adds to your cost and delays revenue opportunities.
Do some clients have additional compliance factors that add to costs?
Costs Tracking
Another element of expense tracking is how often do you remit costs to your clients? Are you using your Collection Software to generate these statements? And how quickly after you remit costs are you paid and are your clients reimbursing all of your costs?. Clients that pay late or over 30 days are incrementally adding to the firms cost of doing business and possibly delaying new revenue opportunities.
BSI would like to hear about other key metrics that are used by firms and companies tracking profitability. In future blogs BSI will offer some ideas on assembling and storing the data required for tracking revenue and expenses.