Blog · Finance metrics and formulas · Legal services
Compare practice contribution with billing realization and the value tied up in matters. Work from time, billing, cost and receivables exports, then reconcile the practice review to the firm's records.
Law firm financial analysis connects fee realization, delivery cost and cash tied up in unfinished or unpaid matters. Start with a practice review, then inspect the matters behind each change. A practice can produce a healthy billed contribution while requiring substantial cash to support work awaiting billing and collection.
Choose one reporting period and one closing date. Keep time-entry value, invoices, recognized revenue and cash receipts in separate columns. Each answers a different question; none can substitute for the others without a reconciliation.
This worked example is an illustrative US firm's September 2026 management review. It uses net fee billings as the revenue measure and calls the result billed contribution. The delivery-cost column contains the month's assigned labor and matter-support costs. It is a management comparison, with any revenue-recognition differences bridged separately to the accounting statements.
Use these exports:
| Export | Required fields | Review purpose |
|---|---|---|
| Time and billing detail | Matter ID, practice, work date, standard fee value, billed fee, adjustment | Identify billing reductions on a matched work cohort |
| Delivery-cost workbook | Matter ID, period, hours, internal cost rate, assigned support cost | Measure the resources consumed |
| WIP listing | Matter ID, closing date, unbilled fee value | Identify work awaiting billing |
| Receivables aging | Matter ID, invoice ID, closing balance, due date | Identify billed fees awaiting collection |
| Finance ledger | Account, period, practice, amount | Reconcile fees, costs and central overhead |
The State Bar of Wisconsin's law firm finance materials distinguish work in progress from accounts receivable in the cash-management review. Preserve that distinction when combining files: an invoice moves value from one category to another.
Use matter identifiers rather than client narratives in the analytical workbook. Resolve matters with missing practices into an explicit unassigned group before calculating practice totals.
The example's standard fee value relates to the same work included in net fee billings. It excludes unrelated open WIP. All amounts below come from the illustrative exports; percentages are rounded to one decimal place after calculation.
| Practice | Standard fee value (USD) | Net fee billings (USD) | Delivery cost (USD) | Billed contribution (USD) | Contribution margin | Closing WIP value (USD) | Closing AR (USD) | WIP plus AR (USD) | |---|---:|---:|---:|---:|---:|---:|---:|---:|---:| | Corporate | 300,000 | 270,000 | 150,000 | 120,000 | 44.4% | 90,000 | 80,000 | 170,000 | | Litigation | 250,000 | 225,000 | 155,000 | 70,000 | 31.1% | 120,000 | 110,000 | 230,000 | | Employment | 150,000 | 135,000 | 65,000 | 70,000 | 51.9% | 30,000 | 20,000 | 50,000 | | Total | 700,000 | 630,000 | 370,000 | 260,000 | 41.3% | 240,000 | 210,000 | 450,000 |
Put those columns in A:I, with practice rows 2:4. Calculate contribution in E2, margin in F2 and the combined balance in I2:
=C2-D2
=IF(C2=0,"",E2/C2)
=G2+H2
Fill down. The total margin divides total contribution by total billings:
=SUM(E2:E4)/SUM(C2:C4)
The result is $260,000 / $630,000 = 41.3%. The ledger supplies central overhead for the next bridge:
| Management result bridge | Amount (USD) |
|---|---|
| Billed contribution | 260,000 |
| Less central overhead | 90,000 |
| Management surplus | 170,000 |
The surplus is $260,000 - $90,000 = $170,000, before financing, taxes and any accounting-basis adjustments.
For a deeper treatment of allocation choices, use law firm profitability analysis. This review keeps those choices fixed so the practice comparison remains interpretable.
Billing realization is net fee billings divided by the standard value of the same billed work. For the table, calculate it with:
=IF(B2=0,"",C2/B2)
Each practice realizes 90.0%: Corporate is $270,000 / $300,000, Litigation is $225,000 / $250,000 and Employment is $135,000 / $150,000. The firm is also $630,000 / $700,000 = 90.0%. Equal realization therefore does not explain the different contribution margins.
Inspect staffing, delivery hours, internal rates and direct support costs next. Litigation and Employment each contribute $70,000, but Litigation consumes $155,000 of delivery cost against Employment's $65,000. That calls for a matter review before any conclusion about partner performance.
Use leverage delivered against leverage priced for the detailed fee-earner-mix calculation. Keep cost rates separate from client billing rates, and disclose whether partner time includes an internal economic cost.
Litigation carries $230,000 of WIP and AR, while Employment carries $50,000. These are billing-value balances, not the cash cost already spent and not a promise of future collection. Aging and recoverability determine how much value will become cash.
For the full days calculation, use lock-up by client. Here, the immediate question is whether the practice manager needs to release bills or the collections team needs to resolve unpaid invoices.
Prove receivables with a separate movement table:
| September receivables movement | Amount (USD) |
|---|---|
| Opening fee receivables | 180,000 |
| Plus net fee billings | 630,000 |
| Less cash applied to fee invoices | 580,000 |
| Less approved receivable write-offs | 20,000 |
| Closing fee receivables | 210,000 |
The identity is $180,000 + $630,000 - $580,000 - $20,000 = $210,000, matching the practice table. This example excludes taxes and pass-through disbursements; reconcile those separately when present.
The controller owns the ties to net billings, delivery costs and the aging. Practice leaders explain matter exceptions and agree actions. Billing and collections staff own the dates needed to distinguish slow invoicing from slow payment.
Check that each invoice line appears once, every assigned matter has a practice and cost allocations sum to the approved cost base. Compare the management surplus with the ledger result through an explicit bridge. The law firm dashboard can organize the resulting review once the definitions and checks are settled.
Bring a sample of your own time, billing, cost and receivables exports to Covirage. Covirage maps the columns; its tools compute and check practice contributions and balance reconciliations, and the external AI model explains the results with every figure traced to its rows. Create a free Covirage account and set up your business with your own files.
See Covirage for law firms for the supporting industry context.
No. Billed contribution subtracts assigned delivery costs from net fee billings. It can exclude central overhead, financing and differences between billing and revenue recognition. Label the measure and bridge it to the firm's accounting result before using it in a partner performance review.
State the treatment explicitly. An internal cost rate may assign an economic cost to partner time even when owner distributions are treated differently in the accounts. Keep that adjustment visible and apply the same policy across practices and periods.
Work may remain unbilled, invoices may remain unpaid and cash payments may precede collections. Review closing WIP and receivables alongside operating bank movements. A contribution figure alone does not show when the firm can pay payroll or other obligations.
Compare earned fees with delivery cost and progress against the engagement budget. Standard hourly time value can still explain effort, but billing realization may have a different meaning. Separate fee arrangements before ranking matters or setting targets for a practice.