---
title: THE PIVOTAL ROLE OF REALIZATION RATE ON LAW FIRM PROFITABILITY, PART 4
description: In the fourth part of this series on realization rates for law firms, dive into reporting—the number one responsibility managing partners entrust to their law firm CFO. Plus, discover the importance of providing a “big picture” look at accounting, presenting information in a meaningful manner.
image: https://blog.4l-law.com/hubfs/realization%20reporting.jpeg
---
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# THE PIVOTAL ROLE OF REALIZATION RATE ON LAW FIRM PROFITABILITY, PART 4
Oct 30, 2018 8:55:00 AM | Michael Marget
Law Firm Accounting: Realization Reporting
Welcome to the fourth and final blog installment about realization in law firm profitability. This installment tackles reporting, which is often the number one responsibility that managing partners entrust to their law firm’s CFO.
All modern law firm accounting software packages track both fee billing and fee collection realization. Most can breakdown this this data by billing attorney, timekeeper, practice group, office location, area of law, or fee arrangement (i.e., hourly, flat fee, or contingency). However, dumping large reports on the partners is not the best way to share information. The test of any good [financial management](http://www.4l-law.com/) reporting we do as law firm managers is whether the information presented is meaningful to the readers. While I firmly believe numbers can tell wonderful stories, a law firm CFO must be a “numbers whisperer” to help the partners understand what the numbers are saying.
### Painting a Bigger Picture for Law Firm Partners
My typical approach to realization reporting involves painting a “big picture” so the partners can appreciate the magnitude of realization in context to the current year. This bird’s eye view involves four simple charts and some narrative. Something like this:
| Fee Billing/Realization⁴ Law firm invoices to clients totaled $739,766 after writing down original time value by $49,896. March 2018 fee billing realization was 93.7%. March 2018 year-to-date fee billing realization was 96.5%. Fee billing realization for 2017 was 97.5%. Billing Analysis – March 2018 Chart #3A Hours Realization Time Value Realization Effective Rate Removed from WIP 4,278.1 100% $ 789,672 100% $ 184.58 Write-ups(downs) -38.3 -0.9% -49,896 -6.3% -11.66 Amount Invoiced 4,239.8 99.1% $ 739,776 93.7% $ 172.92 Billing Analysis – Year-to-Date through March 2018 Chart #3B Hours Realization Time Value Realization Effective Rate Removed from WIP 12,262.3 100% $ 2,237,421 100% $ 182.46 Write-ups(downs) -136.7 -1.1% -77,640 -3.5% -6.33 Amount Invoiced 12,125.6 98.9% $ 2,159,781 96.5% $ 176.13 The significant March 2018 fee billing write-off/premiums were for: Chart #3C Billable hours Original fee value Write-up (down) Invoice net fee value Net Realization Effective Rate John Jay Insurance 1,479.3 $ 261,652 $ -22,682 $ 238,970 91.3% $ 161.54 Rutledge Specialty 36.2 8,663 -1,663 7,000 80.8% 193.37 Cushing Indemnity 155.7 29,394 -12,535 16,859 57.4% 108.28 Taney Medical 17.0 3,400 1,600 5,000 147.1% 294.12 Blair Underwriters 94.5 18,878 -1,888 17,000 90.0% 179.89 Fee Collections⁵ March 2018 fee revenue was $683,894 after collection write-offs totaling $40,722. March 2018 fee revenue realization was 94.4%. March 2018 year-to-date fee revenue realization was 97.6%. Fee revenue realization for all of 2017 was 98.0%. Chart #4 March 2018 March 2017 Variance Var. % 2018 YTD 2017 YTD Variance Var. % Original AR value $ 724,616 $ 1,907,257 AR write-up (down) -40,722 -46,014 Net Fee Revenue $ 683,894 $ 892,596 $ -208,702 -23.4% $ 1,861,243 $ 2,238,930 $ -377,687 -16.9% Expense Revenue 21 59 -38 611 59 552 Retainer Revenue 1,681 -7,731 9,412 616 -18,173 18,789 Total Revenue $ 685,596 $ 884,925 $ -199,329 -22.5% $ 1,862,470 $ 2,220,816 $ -358,346 -16.1% The larger March 2018 accounts receivable write-offs and invoice fee credits were for: John Jay Insurance -- $2,815 (write-off) Cushing Indemnity -- $1,048 (write-off) Iredell Protective Company -- $11,453 (write-off) Johnson & Paterson -- $2,314 (write-off) Chase, Ellsworth -- $7,484 (write-off) Washington & Moore – $10,850 (fee credit) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ ⁴ See, Reports #301 (Monthly Fee Billing Realization); #302 (YTD Fee Billing Realization). ⁵ See, Reports #410 (Cash Receipts Report); #421 (Monthly Net Realization); #422 (YTD Net Realization). |
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Footnotes 4 and 5 that accompany the charts and narrative direct those who might be interested to refer to the detail reports which are the source of the information. In the detail reports, partners can trace the numbers to computer-generated information where they will find the underlying data sorted by client, [timekeeper](https://smallbusiness.chron.com/basic-principles-timekeeping-law-office-52278.html), billing attorney, practice group, area of law, and fee arrangement, all for their perusal or inquiry.
The intention of the charts and narrative in Illustration #3 is to convey the following information (without being “too preachy”):
1. **The firm removed $789,672 of time value from the unbilled time inventory during the preceding month and billing attorneys did the following with it:**
2. **Year-to-date the firm removed $2,237,421 of time value from unbilled time inventory and:**
3. **Chart #4 is intended to convey the same message about fee billing realization—for the month and year-to-date.**
The Illustration #3 format has evolved over the years and has worked well for me in terms of setting up discussions about ongoing realization issues with law firms. Find a format that works for you; the important thing is to track the numbers and report, educate, and begin a conversation to raise awareness. There is an adage—[*you are what you measure*](https://www.demandgenreport.com/blog/a/you-are-what-you-measure)*.* My advice: start measuring. Because if you can’t measure it, there’s no way to manage or improve it.
This concludes my four part series on the role of realization rate on law firm profitability. I hope you’ve found it informative and valuable. If you want to learn more about law firm realization rates or look into the outsourced accounting services 4L can provide to your firm, [contact us today](http://www.4l-law.com/contact/). We look forward to helping your firm grow!
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### Michael Marget
Mike Marget is an erstwhile large law firm manager with tours of duty as COO at Katten Muchin, Jenner & Block and CFO at Holland & Knight, among others. He’s currently president of 4L Law Firm Services which provides accounting, bookkeeping and related back office services to small/midsize law firms. His blog, Law Firm CFO, is dedicated to every law firm manager who has ever asked the question, “Why me?”
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