Total billable hours × Standard hourly rates (before discounts/write-downs).
The actual amount invoiced to clients after discounts.
The actual cash received from clients.
Billing Realization Rate:0.00%
Collection Realization Rate:0.00%
Overall Realization Rate:0.00%
Total Revenue Leakage:$0.00
function calculateRealization() {
// 1. Get input values
var workValue = parseFloat(document.getElementById('workValue').value);
var billedAmount = parseFloat(document.getElementById('billedAmount').value);
var collectedAmount = parseFloat(document.getElementById('collectedAmount').value);
// 2. Validation
if (isNaN(workValue) || isNaN(billedAmount) || isNaN(collectedAmount)) {
alert("Please enter valid numeric values for all fields.");
return;
}
if (workValue < 0 || billedAmount < 0 || collectedAmount 0) {
billingRealization = (billedAmount / workValue) * 100;
}
// Collection Realization = Collected / Billed
if (billedAmount > 0) {
collectionRealization = (collectedAmount / billedAmount) * 100;
}
// Overall Realization = Collected / Standard Value
if (workValue > 0) {
overallRealization = (collectedAmount / workValue) * 100;
}
// Revenue Leakage = Standard Value – Collected
leakage = workValue – collectedAmount;
// 5. Display Results
document.getElementById('billingRateResult').innerText = billingRealization.toFixed(2) + "%";
document.getElementById('collectionRateResult').innerText = collectionRealization.toFixed(2) + "%";
document.getElementById('overallRateResult').innerText = overallRealization.toFixed(2) + "%";
// Format currency for leakage
document.getElementById('leakageResult').innerText = "$" + leakage.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Show results container
document.getElementById('results').style.display = "block";
}
How to Calculate Law Firm Realization Rate
In the legal industry, the realization rate is one of the most critical Key Performance Indicators (KPIs) for assessing financial health and operational efficiency. It measures the difference between the theoretical value of the work performed by attorneys and the actual cash that ends up in the firm's bank account.
Understanding the gap between hours worked and cash collected helps partners identify issues in billing practices, client solvency, or fee earner productivity. This guide and calculator will help you compute the three main types of realization: Billing, Collection, and Overall.
The Three Types of Realization Rates
1. Billing Realization Rate
This metric measures the percentage of billable work (at standard rates) that actually gets invoiced to the client. It highlights how much value is lost due to write-downs or discounts given before the invoice is sent.
Formula:(Total Amount Billed ÷ Standard Value of Work) × 100
Example: If an attorney works $10,000 worth of hours but writes off $1,000 due to inefficiencies, billing $9,000, the billing realization is 90%.
2. Collection Realization Rate
This metric measures the percentage of invoiced amounts that are actually paid by the client. It reflects the effectiveness of the firm's accounts receivable and collections processes.
Formula:(Total Amount Collected ÷ Total Amount Billed) × 100
Example: If the firm sends an invoice for $9,000 but the client only pays $8,500 (perhaps negotiating a reduction), the collection realization is roughly 94.4%.
3. Overall Realization Rate
The "gold standard" metric, this combines both billing and collection performance to show the total percentage of work value converted into cash.
Formula:(Total Amount Collected ÷ Standard Value of Work) × 100
Example: Using the numbers above ($10,000 work value vs. $8,500 collected), the overall realization is 85%.
Why Your Realization Rate Matters
Profitability Analysis: High billable hours mean nothing if the realization rate is low. A partner with fewer hours but 98% realization may be more profitable than one with high hours and 75% realization.
Pricing Strategy: Consistently low billing realization suggests your standard rates might be too high for the market, or your scoping is inaccurate.
Client Evaluation: Clients with low collection realization rates may cost more to service than they are worth, signalling a need to renegotiate terms or disengage.
Common Causes of Low Realization
Inefficient Work: Associates taking longer than necessary, forcing partners to write down time before billing.
Vague Invoicing: Clients refuse to pay for line items described simply as "case research" without specific details.
Slow Billing Cycles: The longer the time between work performed and invoice sent, the lower the collection rate typically is (the "lockup" period).
Lack of Retainers: Working without upfront retainers increases the risk of non-payment.
Frequently Asked Questions
What is a good realization rate for a law firm?
While it varies by practice area, a healthy target for overall realization is typically between 85% and 90%. Elite firms often target 95%+, while insurance defense firms might operate on lower margins due to strict billing guidelines.
How can I improve my firm's realization rate?
Key strategies include: detailed time tracking to justify value, pre-bill review processes to catch errors early, requiring retainers, shortening the billing cycle, and having frank discussions with clients about budget expectations before work begins.
Does "Standard Value of Work" include pro bono work?
Typically, no. Realization rates usually focus on billable matters. Including pro bono hours (which have a standard value but zero expected revenue) would artificially deflate your realization metrics.