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Use this one easy chart to track attorney profitability

A St. Louis administrator has developed a simple chart that tracks the monthly and yearly profitability of each attorney.

Its obvious benefits are that it allows the firm to address performance issues immediately and that it provides a solid basis for determining compensation and bonuses.

But it goes beyond that, says the administrator.

It lets the firm see which attorneys are most profitable and which clients are most profitable. It shows if the rates for each type of matter are set correctly and even if it’s worth the firm’s time to take on certain types of clients.

The chart is admittedly limited. It doesn’t work for areas that bring in non-hourly revenues, such as settlements. Neither does it account for things such as an attorney’s rainmaking success or marketing work.

No firm can support even an excellent attorney who isn’t profitable. Superb skills alone are not enough. Each attorney has to bring in a profit, and the numbers show in plain dollars and cents what profit each attorney is producing.

Revenues, expenses, profit

A 12-column chart covers each attorney. [Download the Excel spreadsheet here.]

The revenues

The first four columns show the attorney’s revenues for each client. They show

A—the names of the clients,2

B—the dates of service for each client,

C—the hours spent on each matter, and

D—the fees generated for each client.

In the example, Attorney Smith has four clients, each billed at a different rate. For July, Client Clark was billed for 20.4 hours, which turned into $4,488 in fees. Client Bates was billed 3.7 hours for a total of $1,147 in fees, and so on.

The total number of hours billed that month is 100.4 hours. And the total amount the attorney has brought in is $24,530.

The expenses

The next six columns show the attorney’s expenses:

E—Compensation. In this example, the attorney draws a standard salary.

F—Benefits. This includes everything—insurance, 401(k) contributions, parking, professional dues, continuing legal education, bonuses, and so on.

G—Total compensation. This is the attorney’s compensation plus benefits.

H—The percentage of the total fees that’s paid to the attorney. This is the salary and benefits ($4,690) divided by the gross fees ($24,530). For July, Attorney John Smith took home 19 percent of the fees he brought in.

I—Gross amount to the firm. This is what the firm brings in. It’s the total fees ($24,530) minus the attorney’s total compensation ($4,690)=$19,840.

J—Amount that goes to overhead. For this figure the administrator uses the attorney’s total compensation and benefits ($4,690), reasoning that any attorney should be pouring at least that much back into the firm to cover the overhead.

It’s possible to measure overhead in great detail, even going so far as to measure the square footage allotted to each attorney. But using just the compensation is fair, because generally, the higher the compensation, the more resources the attorney uses.

The profits

The last two columns of the chart show the profits the firm realizes:

K—The profit after compensation and overhead are taken out, or $19,840—$4,690 = $15,150.

L—The profit percentage on the fees the attorney has brought in. This is the firm’s total profit for the month ($15,150) divided by the total fees ($24,530), or 61.8 percent.

The goal is to achieve a minimum profit margin of 30 percent. At that level, a third of the attorney’s fees goes to compensation, a third goes to overhead, and a third goes to profit. And optimally, that final number should be 66 percent or more.

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