Published on 6/19/06
Are you a millionaire? Many lawyers can answer "yes," according to recent studies of the largest and most profitable law firms.
The average profit per partner at these firms passed the $1 million mark for the first time last year, with the top 10 firms booking profit per partner of $2 million or more.
Gross revenue of the largest law firms increased about 10 percent over 2004. Seven big law firms each generated more than $1 billion. The richest firm, as measured by the average compensation per partner ($3.8 million) and revenue per lawyer ($2.4 million), was Wachtell, Lipton, Rosen & Katz in New York, as it has been virtually since this listing began more than 20 years ago.
Experts say, and the experience of most of us confirms, that these largest law firms bear little resemblance to the average American law firm. USA Today quoted a professor at Loyola University Law School as saying, "The average (American) lawyer is working at a small firm making $60,000 to $100,000 a year. Even at large firms in (many) big cities, it's $100,000 to $160,000 on average."
Certainly I agree that mega-firms and the average law firm are different. But, my experience coaching lawyers and consulting with law firms around the country suggests that we shouldn't simply dismiss the disparity as being how the other half lives and leave it at that. Every lawyer can take practical steps today to increase a practice's profitability.
Here are three to consider:
- Firms grow based on their clients.
Thus, lawyers must look for clients who have growth potential. In other words, "commodity" work will not result in high and profitable growth -- unless you have a large volume of such work. Highly focused and "high-end" work will result in higher revenue and profits.
- When the work you do is perceived by the client as having high value, you will be able to charge more.
This will get you out of the time modality of billing and into the value modality of billing, where the profits are significantly higher. It's simple Business 101 -- but too many law firms ignore the lesson.
- Don't simply assume that clients won't accept higher fees.
Analyze whether your services, skill and experience justify a fee increase. Look at other current market conditions and competitive pressures in your geographic and practice areas. If you believe your strengths and your market justify an increase, choose a time that places the client at the peak of the "satisfaction curve" after you've won a motion or negotiated a favorable deal -- even if somewhat before or beyond your normal billing date. Those clients who believe your service to be of value will accept the higher fees and remain with you.
We've all heard that a cynic knows the price of everything and the value of nothing. When it comes to profitability, lawyers can't afford to be cynical. Considering ways to make your practice more profitable may be the best way to enhance the value of your services and what you are paid to provide them.
