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 The
Economics of Practicing Law
 Overhead
Expenses
Only private practitioners responded to this portion
of the survey, with 155 sole practitioners and 234 firms providing information.These
respondents indicated that for 2000, their average per-attorney overhead
was $68,654, broken down into $33,884 for labor (salary and benefits for
all nonlawyer personnel), $13,980 for occupancy (rent or mortgage, phone,
utilities), and $23,631 for all other nonsalary expenses. The average
gross receipts per attorney for 2000 was $159,269. Thus, for 2000 the
average expenses-to-gross-receipts ratio was 0.35.
Now to compare medians. The median total overhead figure was $60,000,
while median gross receipts tallied $145,000. Comparing median overhead
to median gross receipts yields a ratio of 0.41. For median data on overhead,
gross receipts, and ratios by region, firm size, and community population,
see the full report, available from the State Bar.
Grove, whose lean management structure allows him to keep his expenses-to-gross-receipts
ratio in the range of 0.22 to 0.27, says he's encouraged to see the survey
findings on this ratio. Perhaps, he concludes, attorneys are making changes
in how they use technology. In the past, too many attorneys merely slapped
new technology on top of an old management structure, hoping that the
added cost would be offset by productivity gains. It often was not.
"Maybe what's happening now," Grove says, "is that technology is starting
to pay off in productivity increases and lower expenses due to changes
in management structure. For example, it may no longer be one attorney,
one assistant, but rather three attorneys, one assistant or, as in my
case, two attorneys and no assistant."
Wilber finds the survey's expenses-to-gross-receipts ratios are roughly
similar to what he sees nationally. But as for the average gross receipts
figure of $159,269, "that's lower compared to what we see in firms across
the United States," Wilber says, "where that number might be $250,000
per lawyer, or even $300,000 or $350,000 per lawyer in bigger firms."
The difference persists when comparing firms of similar size. For instance,
nationally for firms with fewer than nine attorneys, the average gross
receipts per lawyer was $266,053 for year 2000, according to Altman Weil's
latest survey. Compare this to the $162,085 average (gross receipts figure)
reported by Wisconsin attorneys in similar-sized firms.
Finally, Wilber offers a caution on expenses/receipts ratios. Avoid
focusing too much on cutting overhead as a way to improve the ratio, he
advises. Sure, you want to trim your overhead as much as is reasonable,
which depends on the nature of your practice. But, "in our view," Wilber
says, "the more important number is the revenues-per-lawyer. That's where
the action is. If you want a more profitable firm, you have to get your
people busy and engage in marketing."
Expenses Billed to Clients
Roughly two-thirds of responding private practitioners say they "always"
or "usually" charge clients for travel time and costs, while 88 percent
charge clients for time spent on phone calls. Almost half always or usually
pass on copying/duplicating costs to their clients.
But the number that perplexes some observers, as it did in the 1999
survey, is the high proportion of private practitioners who fail to charge
clients for legal assistant time. Only 46 percent say they always or usually
pass on this cost to clients. "That floored me," says Lori Kannenberg,
a law firm administrator at Lawton & Cates, Madison, and past-president
of the Wisconsin Association of Legal Administrators. "We've been talking
for years and years about billing for paralegal time. It's unfortunate
that more firms aren't doing that."
Still, the survey finding could be skewed, because of a lingering problem
with definition. The survey asked about billing for legal assistant time
without defining "legal assistant." Some firms, however, use that job
title for staff who actually are secretaries, not paralegals. And the
vast majority of firms do not charge clients for secretarial time (only
11 percent of survey respondents always or usually do so).
That leaves a somewhat fuzzy picture of whether firms bill often enough
for paralegal time. But if they don't, "they're losing out on potential
revenue," Kannenberg notes. "And they probably have employees who feel
undervalued."
At Kannenberg's firm, for example, some staff members who opted to get
training as paralegals now serve as both secretaries and paralegals. They're
paid more for the paralegal portion of their work. In turn, their paralegal
time is billed to clients, who are happy to pay the paralegal's rather
than the lawyer's rate for legal work. Does this disparity in pay for
support staff having mixed duties create tensions among staff? Not if
you educate employees about the reasons for the difference, Kannenberg
maintains. "Here we make it no secret," she says, "that if you take on
more responsibility, you will be paid more. And you will bill for your
time."
Marketing and More
Seventy-two percent of private practitioner respondents say they market
their services. Figure 7 shows how firms,
in three size categories, use various marketing devices.
A couple of statistics, in particular, caught the eye of Jennifer Rupkey,
director of client development for Michael Best & Friedrich, a large Milwaukee
law firm, and president of the Wisconsin chapter of the Legal Marketing
Association. She notes that for larger firms, the usage rate for Web pages
is a close second to the rate for firm brochures. "In the past, the brochure
was typically the core piece," Rupkey points out. "Now the Web site is
close behind. In the future, I don't see firms replacing their brochure
with a Web site, but rather using the Web page to complement the brochure.
Brochures will remain useful for distributing at client meetings and seminars,"
she says.
Rupkey also notes that only 12 percent of firms with fewer than 10 attorneys
have a Web page. "I'm surprised at that," she says, "because they're the
ones whose clients would be on the Internet looking to hire a lawyer.
Smaller firms could get clients as a result of their Web site." By contrast,
larger firms, because of their target clientele, use Web sites as "an
informational tool that complements our other marketing devices," Rupkey
explains. "We don't look to get new clients through our Web site."
When asked to assess the quantity of their work, 61 percent of private
practitioners say their workload is "about right," while 29 percent report
it is "more than they can handle," and only 10 percent say it's "insufficient
to keep busy."
Finally, of private practitioners, 59 percent responded that the number
of lawyers in the community in which they practice is "about right." This
result is nearly the reverse of a similar question in the recent Bench/Bar
Survey, as reported in the November Wisconsin Lawyer. In that survey,
53 percent of respondents said there are "too many attorneys in practice
today for the amount of work to be done."
The difference in findings between these two surveys is a result of
what the questions asked of respondents - that is, an overall assessment
of the lawyer count versus sizing up the situation close to home. "It's
similar to the differences in public perceptions about lawyers," Mowris
points out. "Overall, they rank lawyers low. But they rank their own lawyer
high. It may be the same factor at work here. How close you are to something
skews your perception."
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