Understanding Your Realization Rate

Everyone likes to get paid for the work they perform. If someone were to offer you a job and tell you that they were only going to pay you for about 60% of the hours you work, you probably wouldn’t take the job! Yet many law firms are performing significant amounts of work and not receiving payment. In other words, the Realization Rate is less than optimal.

There are two types of realization:

  1. Account Receivable Realization: measures the ‘collected’ revenue as a percentage of the ‘invoiced’ revenue.
  2. Billing Realization Rate: measures the work your firm performs for which you never issue an invoice.

It is important to understand where your firm stands on both measures to ensure you are capturing as much revenue as possible.

Calculating Your BusinessThere is no formal benchmarking data available specific to the default practice area. However, it would not be surprising to see firms with an overall realization rate of less than 70% simply due to the lack of measurement and tracking in place.

If you want to have a better understanding of how your firm is doing, here are some areas you can begin to measure and review:

  • Accounts Receivable
  • Adjustments: typically defined as work for which an invoice should have been submitted but was not—due to lack of client approval, missing written approvals or documentation, untimely submission of billing trigger, etc.
  • Write-Offs: typically defined as invoices issued but never paid or partially paid
  • Missed Billing Opportunities: typically defined as work that is a billable event, but not flagged accordingly so a billing trigger never occurs

In today’s environment, it is increasingly difficult to receive new files and work them efficiently. Are you willing to leave behind $0.30 of every dollar earned? Contact us today if you are unsure where you stand or are interested in starting an internal review process.