Realisation is an annual number
Standard value of time recorded, against what was billed, against what was collected. Most firms compute this once a year and cannot see which practice areas or partners drive the gap.
ERP by industry
A law firm's economics are decided by three numbers most firms compute annually: realisation against standard rates, collection against what was billed, and the loaded cost of the people doing the work. All three are calculable monthly.
Send a quarter of time entries, bills, and collections. We will compute realisation and matter margin.
The problems
Practice management systems handle matters and billing well. What they do not do is tell you which matters and which clients made money.
Standard value of time recorded, against what was billed, against what was collected. Most firms compute this once a year and cannot see which practice areas or partners drive the gap.
Revenue is known. Cost — loaded timekeeper cost plus disbursements plus a share of overhead — is not, so profitability by matter, client, or practice area is a spreadsheet at best.
Reconstructed Friday time is less accurate and lower than contemporaneous time. The gap is measurable and it is usually several percent of revenue.
Client funds must be segregated, reconciled three ways, and never commingled. It is well understood and it is where firms get into regulatory trouble.
Capital accounts, draws, distributions, and allocation under a partnership agreement that several people interpret slightly differently.
An operating partnership, a service company, and sometimes a separate entity per office. Consolidated by hand each month.
Where the money goes
A representative shape for a firm between $10M and $60M. The first two deductions never appear in the general ledger at all.
Rate discounts and written-off time together commonly account for fifteen or sixteen points of standard value, and neither ever appears in the general ledger — the ledger only sees what was billed. A firm measuring profitability from billings is measuring after the two largest leakages have already happened, and cannot see where they concentrated.
Your stack
Your practice management system keeps running matters and billing. What changes is that the financial picture stops being assembled annually.
Benchmarks
Drawn from our own engagements with law firms between $10M and $60M. The bar is a typical erp.io customer after two quarters; the marker is the segment median.
Law firm reporting is built around billings and collections because that is what practice management systems produce. Both are useful and neither answers whether a matter, a client, or a practice area made money.
The missing input is loaded timekeeper cost: salary, employer taxes, benefits, and an overhead allocation, per person rather than blended. Without it, a matter staffed heavily with associates and one staffed with partners look identical on a billings report and are entirely different businesses.
The gap between standard value and cash collected has three components: rates discounted at engagement, time written off before billing, and amounts billed but not collected. Firms typically know the aggregate and not the split.
The split matters because the three have different remedies. Discounting is a pricing decision made at intake. Write-offs are a scoping or staffing problem inside the matter. Collection is an AR process. Treating them as one number means addressing whichever one somebody happens to believe is the issue.
Time recorded the same day is both more accurate and higher than time reconstructed on Friday, and the difference across a firm is typically several percent of revenue. That is not a systems problem exactly, and systems affect it — a drafted timesheet a lawyer confirms takes minutes where a blank one takes an hour of recall.
Our customers see same-day entry rise from around half to above eighty percent, which is one of the more directly monetisable changes on this page.
Client trust funds are segregated, never commingled with operating funds, and reconciled three ways — bank statement, trust ledger, and individual client balances — with the client ledger required to sum exactly to the account balance at all times.
We reconcile trust daily rather than monthly and flag any client balance approaching zero or going negative, because a negative client trust balance is a regulatory event rather than an accounting one. Where a firm needs deep IOLTA-specific compliance workflow, we would point at a legal-specialist system rather than claim depth we do not have.
We are not a practice management system. Matter management, document assembly, conflicts checking, court calendaring, and e-filing belong in Clio, Aderant, or their peers and we integrate rather than compete. Firms whose primary requirement is deep IOLTA compliance workflow, or firms operating across many jurisdictions with local regulatory reporting, should look at a legal-specialist financial system.
Questions
Discounts, write-offs, and collection are three different problems. A quarter of data separates them.