Calculating Your Revenue: Average Value Per Case & Average Collection Per Case

Average revenue per case is an equation that’s used often in Mastery Group. It’s a fulcrum number that is vital in strategic planning because it allows you to project forward the number of cases or matters that need to come through the door in order for you to hit the revenue goal you’ve set for your firm.

However, too many owners aren’t factoring in the discrepancy that often happens between what’s billed and what’s actually collected. If these numbers are far apart, cleaning them up needs to be a Rock or key quarterly priority. Making headway on the money that should be collected per case is an essential piece of getting your house in order and building a solid foundation, and Melissa is showing you how in this episode.

Listen in this week to hear why knowing these numbers can be extremely helpful for future planning without creating additional confusion for yourself. You’ll hear why not getting on top of this data sets you up for a losing game, and how to start closing the gap in your data on billed versus collected. 

‍If you're a law firm owner who's thirsty for figuring out exactly what you're aiming for and making a really well thought out, deliberate strategic plan to get there, and then having accountability and coaching along the way so that you can really honor your plans, then join us in Mastery Group.

What You’ll Discover:

• The various equations for calculating average revenue per case based on your fee structure.

• Why you need to know your numbers on average value per case and average collection per case.

• How to start closing the gap between your numbers on billed vs collected.

Featured on the Show:

• Create space, mindset, and concrete plans for growth. Start here: Velocity Work Monday Map.

• Join Mastery Group

• Join the waitlist for our next Monday Map Accelerator, a 5-day virtual deep-dive event.

• #173: Reaching Your Revenue Goals: Planning and Projections

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I’m Melissa Shanahan, and this is The Law Firm Owner Podcast Episode #211.

Welcome to The Law Firm Owner Podcast powered by Velocity Work for owners who want to grow a firm that gives them the life they want. Get crystal clear on where you're going. Take planning seriously and honor your plan like a pro. This is the work that creates Velocity.

Everyone, welcome to this week's episode. I have something that I wanted to share here on the podcast, it's come up in Mastery Group. During the Strategic Planning, it came up a little bit. And then also, in Office Hours, afterwards, where I'm helping them really dial in their plans for their firms, it came up again. And so, I want to talk about it here.

We talk a lot about average revenue per case. I have done podcast episodes on it before. It's a key number that we use with strategic planning. Because it allows us to project in a really healthy way, project forward the number of cases that need to be brought to the door. The number of matters that need to be brought to the door, in order to hit the revenue goal that you have set.

And so, we use it a lot. It's a fulcrum number. When we calculate it, I give equations, based on your fee structure, on how to get to the average revenue per case, or matter.

If you are flat fee, the equation, what I always had said before was, total revenue for your firm in any given date range. Let's say you're going to look at the last 12 months. The total revenue divided by the number of cases or matters that came to the door in that year. So, that's your average value per case.

Now, if you don't get all that money up front, then this can be a little bit different and I help people think through their specific scenarios. But generally speaking, that is the equation for flat fee firms.

For contingency fee in any given date range. So, last 12 months, let's say. Closed case revenue divided by the number of closed cases.

And for hourly, it is closed case revenue divided by the number of closed cases or matters.

So, that is generally how I have always explained it. But what I haven’t had an opportunity to clarify is what I mean by revenue. So, what I mean, is  what's billed. Because that tells me the value of the case. Do you collect all that? I don't know. We're going to talk about that next because I do care about that.

Average value is an important number to know. If you have a collections issue, then yeah, you're going to need to be tuned into that because it's going to shift how you think about hitting certain goals. I have people calculate the revenue goal they have for their firm, divided by the average revenue per case. And that tells us how many cases they need through the door. For contingency fee, how many cases they need to close in order to get that.

However, and this is mostly speaking to hourly and flat fee, if you have a collections rate issue, then that number of cases through the door is not going to be correct. Because you don't collect the full value of your case. So, you're not going to hit your revenue goal, if we're doing this math.

In this case, it is helpful to look at your collections rate so that you can tack on some work. You're going to need to do more work to get to your revenue goal number, than if you were actually making full value on your cases. If you were actually collecting the full value on each case.

There's a couple of ways to think about this. Number one, is that you should always, always do what's billed divided by the number of cases, that'll give you average value. And the other, is your collections. Your total collections divided by the number of cases. Using the equations that I gave earlier depending on your fee structure.

But you do what's been collected, not what's been billed. And you divide it by the number of cases that contributed to it. That will tell your average collections per case. And if those two numbers are far apart, if they are not close together, then you need to figure out a way to clean that up. That should probably be a Rock or a key quarterly priority; making headway on getting on top of the money that's coming to the door, or the money that should be coming to the door.

Now, when you are setting goals and planning for the future and doing strategic planning, until you have your collections rate better... So, you have to keep an eye on both, average value per case. and the average collected per case. You have to keep an eye on both of those numbers, and get them closer and closer and closer and closer together, until it's essentially the same number.

Until then, you can very well use your revenue goal that you have for the firm, divided by your average collections per case. And that will tell you the number of cases you need through the door in order to hit your revenue goal.

Another way to think about this is, let's say you know you have an 85% collections rate. And you want $500,000 to come through the door of your firm. So, if that's true, and you know you have an 85% collections rate, you need to tack on an extra 15% to your revenue goal so that you can account for the loss; you have to make it up.

And that would look like adding an extra $75,000 on to $500,000. That's 15% more. So, $575,000 is your revenue goal, because you're going to divide it by your average value per case. And because you have a collections issue, you will land at $500K.

Another way to simplify this, if you want to make $500,000, and your average value per case is $5,000, you need 100 of those to come to the door if you don't have a collections problem. If you do have a collections problem, let's say you are at 85%, your collections rate versus what you bill, then you're going to have to tack that on to the revenue goal.

You're going to have to consider that. So, you want to collect $500,000, but you're at 85% collections rate, so you have to tack on 15%. That's $575,000, what you have to shoot for. And if you're shooting for $575,000, and your average value is $5,000, then that's 115 cases. So, you have to do 15 extra cases, to make what you should have made. I guess that's what I'm trying to say. You have to do 15 extra cases to land at $500,000.

But if you didn't have a collections issue, you could just do 100 cases and make $500,000. So, this is worth considering and thinking through when you're planning and looking at both. I wanted to clear this up, though. And I'm going to actually change the language in the Mastery Group workbooks to be more explicit with what I mean. I'm probably going to add an extra little section on the page to calculate both; do both.

So, when I give the equations on how to calculate your average revenues, now I'm going to split it up. I'm going to say calculate your average value per case. That's the total billed within a given date range, divided by the number of cases or matters.

The equations vary depending on your fee structure. I outlined those at the beginning. So, I'll do ‘total billed’. And then the next section, basically, I'm going to have them think through, for every matter type or case type, the average collections per case. And see how far off those are.

It's just a good exercise to go through as an owner. You want to know that. And so, that'll tell you if there's a collections issue or not. Also, you can do a report for ‘billed vs. collected’ and see what the discrepancy is there. So, that's the other way.

But it is important to stay on top of both of these. I just realized for the first time, through conversations, that there can be confusion; people's brains think differently about this. Some were using collections divided by their case numbers. Some were using what was billed divided by their case numbers. And you have to be in tune with both.

But really, I'm talking about value. What is the value of the case? If there is a discrepancy, then yeah, it needs to be a focus. It needs to be something that is prioritized to get underneath, so that the right progress is made for your firm. To get your house in order and get a really strong solid foundation.

Now, if you happen to be the type of practice area, or the type of firm, and depending on where you are and what you're practicing, where you know that there's always going to be a gap between collections and what's billed, then okay, you just have to make adjustments for that always.

When you decide what you want through the door, you have to actually decide what does that mean you have to bill in order to get it through the door? And then, do the work that way.

For some of you this may be common sense, and you've already thought about this. But there's so many of us out there that just want a little guidance and just want someone to lay it out. And I hope this podcast offered that a bit for you and where you are.

Bottom line, you need to know your collections, that's for sure. What would be really helpful for you to know is the average value per case or matter, and per case or matter type; we get more granular with my people. And then on the flip side, if you do have a collections problem, especially your average collections per case.

Just knowing these numbers can be very helpful in future planning without creating confusion for yourself or setting yourself up for a losing game. I see people base their goals on what they bill, but they don't collect that. Well, they're never going to meet that. They're always going to feel deflated. They're never going to hit the revenue goal because they don't collect enough. There's too much of a discrepancy that they are not factoring in.

I just want to make sure that you are thinking through this, and you are accounting for the discrepancy. There's a couple of different ways to get there, which I hope I laid out well on this podcast. It's hard to do without having a class and teaching a class and having slides. But in a podcast, I hope I'm doing it in a way that you can see what I'm saying, at least enough to go sit down and play with your numbers.

Go sit down and know what these numbers are for yourself. Then you're onto something. Then you have real data. Then you can go on facts, not feelings. And from there, you can make a really strong plan.

Alright, everybody, have a wonderful week. I'll see you here next Tuesday.

Hey, you may not know this, but there's a free guide for a process I teach called Monday Map/ Friday Wrap. If you go to velocitywork.com, it's all yours. It's about how to plan your time and honor your plans. So that week over week, more work that moves the needle is getting done in less time. Go to velocitywork.com to get your free copy.

Thank you for listening to The Law Firm Owner Podcast. If you're ready to get clearer on your vision, data, and mindset, then head over to velocitywork.com where you can plug in to Quarterly Strategic Planning, with accountability and coaching in between. This is the work that creates velocity.