What’s the Typical Law Firm Profit Margin Per Partner?

There are many advantages to joining a big law firm. The cases are more interesting and diverse than what you find in a smaller boutique firm. The pay is also much more substantial when you make partner.

Although I developed a passion for the law in college, I had no doubt about the kind of law firm I wanted to join when I graduated from law school. I wanted to join a large law firm and make partner. I was able to do so, and have been amply rewarded for my hard work and dedication.

If you are a junior law associate in a large law firm, the compensation you receive if you make partner should be no mystery. When you become partner, you assume a stake in the firm. This means you partake in the firm’s profits.

Here is what you should know about how profit per partner works.

What’s the Typical Law Firm Profit Margin Per Partner?

To answer this question directly, we will start with a general rule. You should take home a third of the revenue you generate for the firm—that is around 33%. However, we will need to break this down a bit more.

There is a distinction between the hours you bill and those billed by the people working for you.

The 33% rule applies to all revenue that comes from the client you have brought in. However, this can be broken down even further. You should receive around 40% of the revenue from the hours you billed personally.

The more profitable the members of your team, the greater share of their revenue will come to you.

The Importance of RPL

To better understand the amount of money you should be making as a partner, you must know your firm’s revenue per lawyer (RPL). This does not correlate to the salaries that each of your associates takes home. These are predetermined and pretty much the same for each year group.

The RPL is the number of billable hours that each lawyer is able to stack up. The more clients you bring in, and the more work they have for you, the more lawyers you will need to put on the case. The key to obtaining a high RPL is to have book—that is, active client cases—large enough to feed a significant portion of your firm’s lawyers.

The more money you make for the firm, the more leverage you will have to demand even more of the revenue share generated by your clients.

Another Consideration

RPL is not the only factor to consider when it comes to compensation. You must also look at the overall profitability of the law firm. When I became partner, I quickly learned that I could not limit myself to thinking about cases, briefs, or even the number of clients I was bringing in and their billable hours.

I had to start thinking like a corporate executive. To ensure you are being properly compensated, you must look at the overall profitability of the firm. If, for example, the firm has a profit margin of 45%, then you should receive at least 45% of the revenue that you are generating.

Some Things That Affect Law Firm Revenue

Becoming partner does not give you any special power or ability. You must work with the conditions and circumstances of the law industry. If you are to bring in new clients and generate revenue for the firm, you must know some of the factors that will affect your ability to do this.

Here are some of the them:

1. Gender

It is an unfortunate but true fact that gender affects the ability of a partner to bring in new clients. In a recent survey, female attorneys brought in 35% less revenue than their male counterparts. Anecdotal evidence of successful women partners is not as relevant as such big picture statistics.

If you are a woman climbing up the corporate legal ladder, it is important to keep the latter in mind.

2. Location

Where your firm is situated will play a huge role in the amount of money its partners are able to bring in. My firm and practice are based in Atlanta. This is the largest and most commercially vibrant city in the South.

My opportunities for bringing in new clients are bountiful, and I get to charge more. A law firm that is based in Montana or Idaho will face a completely different type of market, and will not be able to charge as much for its services.

3. Practice area

It is well-known that law firms with practice in corporate and intellectual law charge the most for their services. This owes to the fact that clients can pay their fees and stand to lose a great deal of money if they are not given the best legal advice and most effective legal protection. Medium and large sized businesses constitute the majority of my law firm’s clientele.

Although we do everything from contracts to litigation, we charge more than firm’s that specialize in criminal defense law because there is so much money at stake if our clients get it wrong legally.

Can You Increase Your Firm’s Revenue?

The more money your law firm makes in general, the more profit you will take home as a partner. This gives you every incentive to think of ways that your firm can do better. As a new partner, it is important to take your time and figure out the politics of the partnership committee.

If you have made partner in an especially conservative firm, it may not be wise to rock the boat too soon or be too much of a disruptive force. As I learned soon after I was made partner, the old-timers do not like change. They want to carry on doing what they believe works.

However, you and the other junior partners are the future of the firm. If you are to keep it financially healthy and viable, you must find ways to modernize the firm. These are some of the means by which you can increase your law firm’s revenue:

1. Automate processes with technology

A variety of downloadable software can make it easier and faster for your firm to get manage non-billable work. A number of online administrative tools that have been designed specifically for law firms are also available. Online payments, client portals, and other client relationship management tools (CRMS) can significantly increase the effectiveness of your billing department.

You should try to get the other partners onboard with investing in such technology.

2. Accept credit cards

Individual consumers are not the only ones who use credit cards. Companies use them as well. It may be easier and more convenient for your corporate clients—especially the clients who work as small teams or partnerships—to pay your fees by credit card.

3. Track metrics

To increase your law firm’s revenue, you must first understand how many billable hours your firm currently has and how much of that has been collected. You must, at a minimum, know:

-The utilization rate, which is the number of billable hours worked divided by the number of hours in the workday

-The realization rate, which is the number of billable hours invoiced by the number of billable hours worked

-The collection rate, which is the number of hours collected divided by the number of hours invoiced.

A low collection rate suggests that you must work to stop your firm from losing revenue. A low realization rate indicates that your firm is losing revenue on hours already worked. If your firm is in either situation, you must know about it so that you can take measures to do something about it.

4. Branding

The best way to increase your firm’s revenue is to gain a solid reputation in both the legal and larger community. The reason why it is important for other law firms to know who you are and respect the work done by your firm is that they may refer clients to you or offload legal work that they have no legal expertise in. You should spend a fair amount of time building relationships with partners at other firms.

Doing so can lead to new clientele.