Last week I blogged about client retention.  I ended that post with the following thought:

If we all know what to do to keep clients and cultivate referrals, why is it so hard?

Answer: because you’re trying to juggle too many cases without the proper resources.  Perhaps:

• You are practicing beyond your areas of expertise
• You know how to weed out bad clients or cases, but fail to do so
• You are practicing within your abilities, but your overall caseload is too high
• You are unwilling to invest in staff, technology, or other solutions to help your practice

The solution?  If the problem is too big of a caseload, and not enough help, hire somebody!  Both you and your clients will be happier because you won’t be struggling (or unable) to keep up with the work.

Penny Wise and Pound Foolish

Making money isn’t easy.  As a result, many lawyers skimp.  Ninety-nine percent of the time when a lawyer is failing (or flailing) they are trying to get by without hiring someone despite the fact they have more work than they can handle.  This trap is referred to as “penny wise and pound foolish.”

In an effort to save pennies, you avoid hiring staff.  Because you aren’t spending money on staff, you assume you are making more money.

What is Your Tipping Point?

There is always a tipping point in every practice when hiring staff means more money in your pocket.  You’ve heard the old saying: you have to spend money to make money.  Guess what?  It applies to running a solo or small law practice.

Make More Money by Hiring Staff

When you spend money on staff, you can delegate away billable and non-billable work and focus on only what you as a lawyer can do for the client.

Do the math:

• The average Oregon lawyer bills more than $200 per hour.
• The most highly paid legal staff in the Portland metro area earn $32.56 per hour.
• The most highly paid legal staff person can work 6.14 hours to every hour spent by a lawyer on a task.  ($200 per hour divided by $32.56 per hour.)
• Many of the tasks performed by highly paid legal staff can be billed to clients.
• The average paralegal in our region of the country bills $133 per hour.
• Round up the high end paralegal’s salary to $33 per hour, add 26% to cover the cost of benefits, and the highly paid paralegal’s total compensation rounds up to $42 per hour.
• The typical lawyer can net a profit of $91 every time his or her highly paid paralegal bills one hour of time to a client.  (Billable rate of $133 per hour – $42 per hour compensation paid to high end paralegal = profit of $91 for each hour billed.)
• On a weekly basis, a highly paid paralegal receives $1,680.  ($42 per hour x 40 hours per week.)  If that highly paid paralegal bills 12.63 hours during the course of a 40 hour week, the lawyer paying the paralegal breaks even.  ($133 per hour billed to clients x 12.63 hours = $1679.79.)
• Any hours the paralegal bills beyond 12.63 is pure profit for the lawyer.  Even with a modest rate of 15 hours billed per week, the lawyer will net $315.21 on  a weekly basis.
• If the lawyer’s paralegal sustains a billable rate of 15 hours per week for the entire month (60 hours by month-end), the lawyer will completely cover the paralegal’s salary and benefits PLUS MAKE A PROFIT OF $1,260.84 BEYOND THE PARALEGAL’S COMPENSATION.
• In the meanwhile, the lawyer has relieved him or herself of 60 hours of billable work and approximately 100 hours of nonbillable work: paper filing, efiling, scanning documents, calendaring, running conflict checks, billing clients, banking, running errands, opening files, closing files, and answering the phone.

Your Numbers Will Vary, But the Math Still Adds Up

Obviously the numbers will vary – depending on the type of staff you hire, how you bill staff time, and your staff’s billable hours. But the underlying math is undeniable – staff need only bill a relatively modest amount of time to cover their cost.  Bill just a bit more, and you have a profit center.

So the next time you are evaluating the profitability of your firm, crunch the numbers.  In all likelihood, you will net more profit by hiring staff than not.

All Rights Reserved [2015] Beverly Michaelis

*The most highly compensated staff in Oregon are paralegals, with wages topping out at $5,666 per month.  On the average, there are 174 working hours in a month. A high-end monthly wage of $5,666 divided by 174 hours equates to $32.56 per hour.  Nationally, the average pay for a paralegal is slightly more, $36 per hour.