Why Small & Mid-Size Law Firms Lose Revenue (And What’s Really Going On Behind the Scenes with KPIs)

Craig Medley
Nov 26, 2025
3 min read

A practical, educational discussion for firm owners

Most small and mid-size law firms work incredibly hard to earn revenue.But keeping that revenue is a completely different challenge — and one that often gets overlooked.

One theme comes up again and again when I talk with founders, partners, and solo attorneys:

“We’re busy. We’re bringing in work. So why doesn’t the financial picture reflect that?”

It’s a fair question.And often, the answer has little to do with effort or client volume.It has everything to do with the quiet, hidden ways revenue slips out of the business.

Your recent carousel captured this visually — revenue goals are hard to hit, but revenue is surprisingly easy to lose in small amounts over time.

Let’s go deeper into why this happens and what it looks like in practice.

1. Unbilled or Underbilled Work: The Invisible Drain

Every law firm knows that billable time drives revenue.But in everyday practice, many hours quietly fall through the cracks.

Some common patterns:

Time gets entered days or weeks late — and the details are fuzzy
Flat-fee matters take more time than expected
Attorneys wait too long to finalize bills
Cases move quickly, and small tasks never get recorded

None of these issues reflect bad habits or carelessness.They reflect how busy legal work really is.

But even a 5–10% miss in time capture adds up over the year.It’s one of the most significant sources of revenue loss — and one of the easiest to underestimate.

Educational takeaway:Better timekeeping isn’t about micromanaging minutes. It’s about creating habits and tools that make capturing work as natural and frictionless as possible.

2. Sloppy or Incomplete Financial Systems: Not Chaos — Just Real Life

The phrase “messy books” sometimes sounds harsh, but for many firms it’s just the reality of a busy practice:

Bank statements that get reconciled quarterly instead of monthly
Client cost reimbursements that aren’t tracked closely
Trust accounting done manually or inconsistently
Expenses logged under generic categories
Data scattered across Clio, email, QuickBooks, and spreadsheets

It’s not disorganization — it’s pressure.

Most attorneys didn’t go into law to spend their time optimizing workflows.So when things get busy (and they always do), the administrative pieces fall to the bottom of the priority list.

But here’s the educational point worth focusing on:

Small inaccuracies compound over time.A misclassified expense here, a delayed reconciliation there — eventually the financial picture becomes unclear.

And when decisions are made without accurate data, the firm pays for it twice:once in time, and once in lost profitability.

Educational takeaway:You don’t need perfect financial systems — you need stable ones. A consistent monthly close process alone can reduce 80% of the confusion.

3. Ignoring KPIs: Flying Blind Without Realizing It

Most lawyers didn’t learn business metrics in school.

So KPIs often feel abstract or “for bigger firms.”

But the truth is simple: even the smallest firm benefits from clear, visible metrics.

The essential ones — utilization, realization, effective hourly rate, and cost per matter — tell you:

Are we capturing the work we’re doing?
Are we billing the value of that work?
Are we collecting what we bill?
Are certain case types draining resources?

Without these insights, revenue goals become guesswork.

You may hit them one month and miss them the next — not because anything changed operationally, but because the firm lacks a consistent way of seeing what's happening financially.

Educational takeaway:KPIs aren’t about charts and dashboards. They’re simply a structured way to answer:“Is our effort turning into revenue the way we expect it to?”

Putting It All Together: A System That Protects Revenue

When small firms put these basics in place, two important things happen:

Revenue becomes more predictable.
You’re no longer wondering why the numbers don’t reflect the workload.
Decision-making becomes easier.
Hiring, pricing, staffing, and growth decisions are grounded in data, not gut feeling.

The goal isn’t perfection.It’s stability — and with stability comes confidence.