Vol. 79, No. 2, February
The Economics of Practicing Law:
A 2005 Snapshot - Sizing Up Your Business Practices
To know if your business practices are efficient, you analyze your
own data. To know if you're competitive, you compare your data with that
of your colleagues. The State Bar's Economics of Law Practice Survey
gives you the comparative data you need to size up your business
practices in key areas: time usage, billing methods, overhead,
collections, and more.
by Dianne Molvig
In December a few attorneys received early releases of the State Bar
of Wisconsin's Economics of Law Practice 2005 Survey Report, and they
are already putting it to good use. (As an incentive to participate,
survey respondents were offered an early release of the report.)
Thomas Schumacher was in the midst of putting together the
2006 budget for his 15-lawyer firm in Baldwin. "It's one thing to look
at your own numbers and compare them from year to year," he says. "But
information in the survey is critical because you get some benchmarks"
for a wider comparison.
William Hess, a partner in a five-attorney Wausau firm, says the
survey helps him assess his office's overhead expenses. "I look at how
in line we are," he says, "and how we're doing on compensation. This is
an excellent tool for hiring and setting salaries for new associates,
for example. I used it for that just yesterday."
The survey report presents means, medians, and other statistical
breakdowns for many aspects of the business side of practicing law. (A
refresher on mathematical definitions: A mean is an average, and a
median is the midpoint value in a series - that is, as many quantities
lie above it as below it.) For example, the survey reports on personal
income, fee billing, and overhead expenditures, including annual average
salary levels and hourly billing rates for associates, legal assistants,
and secretaries with varying levels of experience. The full report
breaks down data by a variety of factors in addition to field of law
including principal position, office location, years in practice,
gender, firm size, and other factors.
Of course, there is no "average" lawyer or "average" law practice.
Still, the survey provides starting points - benchmarks, as Schumacher
noted - for lawyers to measure against in evaluating the economics of
their own practices.
"I look at the survey numbers and my practice and see where I fit
in," says Cottage Grove solo practitioner Thomas Heyn, chair of the
State Bar's Law Practice section. "If I see something that's out of
place, then I need to ask myself if that's advantageous, or if I'm
missing the boat. If you find you're close to the mean or median, you
have to ask whether that's good or bad because sometimes you can get
The new survey is the first since 2001. A survey questionnaire went
out in May 2005 to a random sampling of 3,000 Wisconsin lawyers in
diverse law settings across the state. Of those, 25 percent responded
with completed questionnaires.
The Time Dimension
Nine of 10 responding lawyers reported they average 35 hours of
billable legal work per week. Those not in private practice responded to
this question by giving their weekly total hours devoted to legal
This average matches closely with what Alan Olson, from the Midwest
office of Altman Weil in Milwaukee, sees in his consulting work with
attorneys in small, medium, and large firms across the U.S. and Canada.
A 35-hour-per-week average totals 1,750 billable hours for a 50-week
year. In Altman Weil surveys, "Our averages tend to be in the
neighborhood of 1,750 hours for partners or shareholders," Olson says,
"and 1,800 hours for associates."
Respondents also were asked how many total hours they work in a
typical week, including legal work, marketing, office administration,
public service, and so on. Nine of 10 said they work an average of 42
hours per week, equivalent to the 42-hour-a-week average reported in the
As with previous surveys, this average leaves many scratching their
heads. "To me, that number is suspect," says Nerino Petro, a former
Rockford, Ill. solo practitioner and technology consultant, who in
January became the State Bar's new practice management advisor (see
"Introducing Nerino Petro"). "And that's nothing more than experience
talking," he adds, "knowing that if I call other solos at their offices
at 6:15 on a weeknight, I'm going to reach them."
Other attorneys interviewed had a similar reaction to the 42-hour
average. As Hess notes, "I can't believe attorneys are only working that
few hours. How many take work home with them in the evenings and on
weekends? If I have a slow week, it's around 50 hours."
So why the discrepancy between people's expectations and the survey's
finding? Respondents who work part-time shouldn't have skewed the
average, as roughly nine out of 10 respondents said they practice law
full-time. That's equivalent to the proportion who said they average a
About one-third of respondents are not in private practice. Some of
them may have more standard 40-hour workweeks, which would lower the
average. Still, observers note that many attorneys in government,
corporate counsel, legal services, and other positions work as many, or
more, hours as do private practitioners.
The upshot is that the lower than expected average remains befuddling
to many. Schumacher conjectures that respondents may have underestimated
the time they devote to nonlegal work. It may be similar, he says, to
what often happens in recording billable time. If a lawyer doesn't
record time spent on a file right away, but does so at the end of the
day or the day after, the tendency is to record less time than actually
worked. "When you look back," Schumacher says, "you discount the hours."
The same phenomenon may have come into play in filling out the
The survey also asked lawyers for a more subjective description of
their workload. Fifty-eight percent said their work is "all they can
handle." Another 30 percent said their work is "more than they preferred
to handle," and 12 percent said it's "insufficient to keep busy." Among
solo practitioners, 20 percent said their work was insufficient. As Heyn
observes, solos need to figure out how to do a better job of attracting
work - "especially from that 30 percent who say they have too much," he
Tracking, Charging, Collecting
Nearly two-thirds of respondents said they track their time "always"
or "always, except in contingency or other nonhourly fee cases." The
average hourly rate is $171, and the median is $165 (compared to $146
and $135 in 2001).
The survey also asked: "If applicable, how long ago did you or your
firm change your hourly billing rate?" Nearly 60 percent of respondents
answered that question. Of those, 81 percent had changed their rate
within the last two years, while 46 percent had done so within the last
Attorneys were asked to indicate the types of legal services for
which they charge a flat fee. Roughly two-thirds of those who do simple
wills, physicians' directives, powers of attorney, and deed preparation
charge flat fees for these services.
The survey also showed that among those who use billing methods other
than the billable hour, 37 percent use contingency fees, 31 percent use
retainers, 17 percent use value billing, and 4 percent use per-diem
No matter the billing method, Olson recommends tracking time. "If you
track your time," he says, "you ultimately can determine your net profit
and whether you're being efficient." Not tracking time invariably means
lost income. If you work 1,750 billable hours per year at $175 per hour,
but only record 90 percent of your time, "You're potentially writing
yourself down by $31,000 a year," Olson says, "at least some of which
could be billed to the client."
Using retainers is another sound business practice that can prevent
lost income, advises Gwendolyn Connolly, a Milwaukee solo practitioner.
"I was impressed to see that 35 percent of solos do ask for advances,"
she says. "One thing I regularly talk to my law school classes about is
that when you request an advance, you're able to ensure your practice
will be successful to some extent, because you know you're going to get
Heyn notes that the proportion of attorneys who use value billing
remains small - 17 percent in this survey, down from 27 percent in 2001.
And yet there's much discussion that value billing is a smart strategy
in the technological age, because it allows lawyers to charge for the
value of their advice rather than merely for time spent, which often is
less due to technology.
"My opinion is that we still don't have a handle on how to do value
billing," Heyn observes. "Billable-hour billing is easier because it's a
mathematical calculation. Value billing is much more involved, not only
in figuring out how to do it but how to present it to the client."
Collecting fees from clients is another potentially thorny issue. Of
respondents, 57 percent said that, on average, 13 percent of the fees
they bill are uncollected. This has a huge impact on profitability,
points out Olson. Again, he uses the example of 1,750 billable hours a
year, at $175 an hour, which yields roughly $306,000.
"Each percentage point that is not realized [collected] reduces that
figure by more than $3,000," he says. "So moving a realization rate from
90 percent to 95 percent in this example would yield an additional
$15,000, which by definition would drop almost entirely to the bottom
Money In, Money Out
The mean net annual income (before taxes) among surveyed attorneys is
$108,358, while the median is $88,000. The 2001 mean was $94,501; the
median was $79,000. The disparity between mean and median seems to
indicate that a few high-earning respondents may have skewed the
average. Bear in mind that respondents' average age is 47, with a median
of 48, and that 20 years is both the mean and median number of years in
The survey asked lawyers to estimate their gross receipts per lawyer.
Only 45 percent responded to this question. The mean gross receipts for
respondents was $183,103, and the median was $168,000.
A considerable gap also exists between the means and medians for
total overhead expenses per attorney in the office. The mean is $87,191
per attorney, and the median is $66,950 per attorney. These compare to a
2001 mean of $68,654, and a median of $60,000. The survey also breaks
down these numbers into salary and fringe benefits; rent, phone, and
utilities; and other nonsalary expenses - and further breaks these down
by size of firm and community.
These various numbers feed into Schumacher's analysis of his firm's
overhead. When he finds his numbers are noticeably off in some areas, "I
look hard at our financials to see what's causing that," he says. "Are
we overhead-heavy in some areas where we don't need to be? Are we not
leveraging our technology as well as we should be? I try to see where
the differences are and figure out why."
Another subject the survey examined is law offices' practices in
charging clients for expenses. (See table on page 59.) Respondents
ranked from "always" to "never" how often they charge clients for time
spent on telephone calls, travel time, travel costs, duplicating,
postage, paralegal or legal assistant time, computerized legal research,
and so on.
"I'm happy to see that the swing seems to be away from charging for
things lawyers used to charge for in the past," Petro says, "such as
computerized legal research or telephone costs. There's nothing more
irritating to clients, for instance, than getting a bill that shows it
cost $85 for time the lawyer spent on the phone with the client, and
then getting charged $2 more for the phone call."
Such practices make clients feel they're being nickeled-and-dimed and
hurt client relations, in Petro's view. It's also important to make sure
the client understands up front exactly what the charges will be, he
advises. For instance, does your office cover the costs of regular
postage, but bill for certified mail? Is there a charge for photocopying
only if it exceeds a set number of pages? "Spell all those charges out
in your fee agreement," Petro says, "so clients know what to
Parting Thoughts on the Bigger Picture
The survey presents a wealth of data about the economics of law
practice. It's important to put this information into perspective,
however, in light of your own situation and priorities, Hess suggests.
For instance, "I happen to like to practice with up-to-date technology,"
he says, "which costs money and increases overhead. But it leads to
greater revenue and more satisfied clients."
All lawyers make choices, not only in how they practice, but also
where they practice. Those choices translate into economic differences.
"Your philosophy and priorities will have an impact on your numbers,"
Hess says. "You have to keep that in mind when you look at the survey
report. The most important thing is that you have a practice that you
enjoy and feel is fulfilling."
As Connolly sees it, the key value of the survey is that it portrays
"the nitty-gritty business aspects," she says, "that lawyers live with
on a day-to-day basis: making your payroll, paying your rent, the time
obligations you have."
But the survey report does more than provide benchmarks for
individual lawyers to use in sizing up their practices, according to
Connolly. The various bits and pieces of statistical data blend together
to create a picture that she feels the profession as a whole needs to
examine. "There may be a disconnect," she says, "between the business
model that lawyers must operate under and the overlay of professionalism
that's expected of them."
For instance, Connolly explains, consider some of the issues the
Board of Governors, of which she's a member, has dealt with in the last
year: the WisTAF petition, Ethics 2000, and new trust account rules.
Against that weigh the business realities the survey portrays: the hours
spent on unbillable work, the substantial overhead costs, and the fact
that many lawyers lose $1 out of every $10 to uncollected fees.
Then suppose you're a solo practitioner or small-firm attorney,
Connolly suggests, who serves as a volunteer board member for a local
nonprofit group. This allows you to achieve several goals at once: do
something good for your community, complete pro bono service, and market
your practice. But if pro bono were to become mandatory and be defined
to include only legal services to poor people, your volunteer work no
longer would count as pro bono. You'd have to devote other time to pro
bono and do your marketing separately. (Survey results show that six out
of 10 lawyers donate approximately 55 hours of pro bono annually.)
That's just one example of how business realities and professional
obligations sometimes clash, Connolly contends. "You can see why many
lawyers feel stressed, or some even under siege," she says. "I'm not
saying lawyers aren't compensated for what they do. But there are a lot
of business pressures, particularly given the number of lawyers who are
in solo or small-firm practices, that make for a stressful business
model. I think the survey helps to give clarity to what it is that we as
a profession are asking of ourselves."
Molvig operates Access Information Service, a Madison writing and
editing service. She is a frequent contributor to area