It’s the guiding light that helps you focus your energy, make decisions, and align your team. It’s the one number that matters more than the rest.

I love to work the abbreviation “KPI” into conversations because it makes me sound like I know business stuff. Using KPI in a sentence makes me sound smarter than I am.

(That’s also true of “EBITDA”–Earning Before Interest, Taxes, Depreciation, and Amortization. Sadly, EBITDA confuses me. I only say it when I get really desperate to seem smart.)

Thankfully I have clarity around KPIs. I know what they are and how to use them. But I use the term differently than some people, so I’ll provide my definition and then I’ll help you find the KPI for your law firm.

Your performance indicators drive your decisions

If you make business decisions based on your gut–instead of your business numbers–you’re in good company.

Most lawyers make business decisions based on how they feel. They’re driven by emotions, rather than data.

They invest more in marketing when things are slow. They stop taking new cases when they feel busy. They rarely consult their financial information before they make these decisions because they don’t have clear, understandable reports.

Of course, not having financial data is a mistake. You should be able to answer your own questions when you want an explanation. Why did you take home $50,000 in January, but only $10,000 in February? You deserve an answer.

Being able to answer these questions gives you the information you need in order to make smart decisions about moving your business forward.

Some lawyers rely on overly complex profit and loss statements or balance sheets. Or even worse, they agonize over raw numbers: how many potential clients called or how many new clients visited the office.

We get more value out of our data when it’s digested and distilled into something useful. This is why turning data into an understandable KPI is incredibly powerful.

You need to figure out which numbers matter and which don’t, and you need to be able to tell, at a glance, what’s happening in your firm.

You need to know your KPI like you know your phone number. Then you need to learn how to push that number. This will make you dramatically more successful.

If you don’t know your KPI (and how to push it), you won’t be successful. It’s as simple as that.

So join me on this little adventure as we hunt for your key performance indicator.

Many numbers matter, but some matter more

Many numbers are important to a business.

In fact, I’m a big fan of using dashboards to keep you wired into the health of your business in real-time. You should to be able watch as the business ebbs and flows.

Your dashboard should reveal your business data as easily and naturally as the dashboard in your car. One glance should answer your questions quickly so you can assess the health of the business.

Why are profits down? Is it a revenue problem or an expense problem? One click should provide the answer. If it’s a revenue issue, what causes it? The volume of new business or the productivity of your team? Again, one click.

Your dashboard should display trends over 12 months so you can see, objectively, whether this moment is better or worse than previous moments.

The more information you can access from your dashboard, the easier it is to drive your business.

To that end, your dashboard should include information related to your …

• Revenue
• Expenses
• Client satisfaction
• Cash
• Debt
• Number of calls
• Cases and consults
• Marketing touches
• Receivables
• Payables
• Revenue per employee
• Average fee per client
• Marketing expense per client

I could go on and on about different numbers you could graph. In fact, you can learn more about dashboards and download a free model dashboard when you reach Rule 8 of the Rosen’s Rules free course.

You can track every element of your business–and of course all these numbers matter–but they matter far less than your KPI.

When your KPI is in good order, your other indicators tend to fall in line. When your KPI underperforms, the rest of your fancy graphs turn in the wrong direction.

There’s just one key KPI

Call me literal, but the “key” in “key performance indicator” means that one stands out more than the others. It’s key. Maybe there’s room for two KPIs, but in my simple mind, key implies a pretty short list.

Not everyone sees it that way. If you Google “law firm key performance indicators,” you’ll find plenty of different business indicators to measure. Pick and choose the important ones that will give you a reliable indication of your business’s performance.

But I define KPIs as “the few indictors that drive the business.” In my mind, there should be one, maybe two (worst case, three) KPIs.

I’m a simple guy. One KPI is good enough for me.

Your KPI is a strong leading indicator

Obviously, there are a lot of numbers you can track, but your KPI should be the one number out of all that data that makes the most difference.

Look for something early in the process–something before revenue, before the consultation, before the call, and before the website visit. It should be something that drives business to you and, therefore, drives the bottom line.

Many businesses use lagging indicators, but you should use leading indicators.

Profit is an example. Profit tells you how things went, not how things will go. Profit is a lagging indicator that tells you the outcome after the game is nearly over.

When you search for your KPI, look for a leader. You want an indicator that tells you how business will do in the future. If you can find this number, you can use it to anticipate the future and improve the likelihood of success.

How to discover your KPI

Your KPI is the number that causes your business to succeed.

It must be measurable. It must be something you can change. It should be something that impacts your lesser indicators (like the ones I mentioned above). It’s almost always something that measures new business. Usually, it relates to marketing.

Finding your KPI is an evolutionary process that takes time, experimentation, thought, and careful attention to data.

As you evaluate a potential KPI, you’ll find yourself moving backwards in time. You’ll look for activities and results that impact the potential KPI and discover that there’s a deeper number that’s actually a stronger indicator.

Your KPI will evolve over time, but not because the business changes. You’ll just get smarter and see the business more clearly. You’ll figure out which number–and which behaviors–really drive the business.

For example, it’s common for a new business to start with revenue as their KPI.

Then they learn they can impact revenue with something more focused, like “marketing expense.” So that becomes their KPI.

Then they decide they can get more specific about their marketing expense, so their KPI becomes “advertising spending.”

Then they take it a step further: they create a formula to calculate advertising reach and frequency. The result of this formula becomes their unique KPI.

Each step along the way is the consequence of experimentation and careful attention to the numbers.

Build the business around the KPI

Once you know your KPI, you know the secret to growing the business. You’ll have a guiding indicator that keeps you on track.

You know that driving that indicator will cause the rest of the business to move in the right direction.

Of course, you’ll face new challenges, like managing the people and technology required to make that number move. But knowing the KPI allows you to scale up.

Your KPI will probably move based on a number of activities. For instance, if your KPI is your Net Promoter Score, you’ll learn which levers to push to change it. You’ll be in a good position to experiment with inputs.

Once you know which KPI is most important, you can build your business around that number. The KPI becomes the focus. It becomes the topic at meetings and planning sessions, and it clarifies your vision. You’ll know to make decisions based on the KPI, rather than emotion.

Example 1: My law firm key indicator

When I started practicing law, my personal KPI was the amount of cash in my checking account.

As an associate, I learned that certain behaviors caused my personal bank balance to increase. I could work on certain projects, align myself with certain partners, engage in particular marketing activities, and kiss certain asses to generate more income for myself. Each of these activities were measurable.

When I left the firm to go out on my own, my KPI went through a similar evolutionary process.

At first, I saw only profit. Then I learned how profit connects to revenue. Then I discovered the not-insignificant impact of expenses.

Eventually I connected the dots. I realized that marketing activities were measurable and that they were key indicators for my firm. More marketing usually created more revenue.

I measured our marketing expenditures, believing it was our KPI. But then I realized that more marketing didn’t always create more profit. I needed a more targeted KPI.

I experimented and measured everything I could. I happened to have a college professor for a neighbor who did surveys as a side business. He agreed to survey our clients. Those surveys evolved into a Net Promoter Score.

Over time, I realized that the Net Promoter Score was a leading indicator for our business.

Previously, I had assumed that marketing expenditures drove success. But marketing a business with poor service wasn’t helpful. I had to maintain service quality, measurable by the Net Promoter Score surveys, in order for the marketing expenditures to work.

I learned that driving up the Net Promoter Score drove up referrals, calls, consults, and client count.

Through an evolutionary process, I learned to focus on client satisfaction instead of marketing. My real KPI was quite different from my original assumption.

That revelation allowed us to grow faster with a lower investment in marketing and a higher margin overall.

Example 2: Another law firm KPI

Let’s take a look at another law firm with which I’m familiar. This firm also went through an evolutionary process to discover their KPI.

Their KPI is more fun than mine. Their KPI is “number of parties.”

This law firm had social events for prospective and existing referral sources. More parties led to more lunch and coffee dates for the business development associates, which resulted in more revenue, which allowed more profit.

For this firm, more parties means more profit, so they built the firm around driving up their unique KPI.

When the firm makes plans for the coming year, they plan parties.

When they have firm meetings, they talk about parties.

When they schedule vacations, they arrange them around parties.

When a vendor comes in hawking ad space, leads, or other marketing opportunities, the firm is only interested if those activities create more parties.

Will their KPI change down the road? Probably, because they’ll keep learning and growing as they experiment.

Knowing your KPI makes it easier to make decisions. It gives you focus. It helps you see your progress and know that you’re building a secure future.

Example 3: My new KPI

As we expand the Rosen Institute, we recognize the importance of understanding the KPI for this new business. We experiment and focus the business on things the numbers reveal as important.

At this point, it appears that the key driver for the business is email signups for our Friday File emails.

As the email list grows, so does our profit. Of course, we experiment and test to see if that indicator is as predictive as we believe. We’ll continue to look further out in the pipeline to see if there’s a better leading indicator to use as our KPI.

Slowly (but surely) we’re building this business around increasing email signups. You’ve probably noticed our more aggressive approach to collecting signups.

We’re also doing more to promote email signups in a variety of other media. We measure each effort against our KPI to gauge effectiveness.

We’re focused on our KPI. As it improves, revenue and profit improve as well.

Find your KPI and build around it

I suspect you’re starting to see how different activities drive your bottom line, and the importance of focusing on the numbers instead of your emotions.

Your KPI is your North Star. It illuminates your decisions, aligns your team around a mission, and keeps everyone focused on the right factors to build the business.

Your KPI isn’t always obvious, but it’s central to your success. Experiment and measure until you discover your KPI.

Your KPI should be the first thing you think about when you wake up in the morning. It should dictate what you do every day. You should use it to drive your business in the right direction.

What’s your KPI?