Law Practice Management Asked and Answered Blog

Category: Indicators

Oct 03, 2018

Small Law Firm Financial Performance Indicators

Question: 

I am the owner of an estate planning firm in Milwaukee, Wisconsin. I have five associates and four paralegals working in the firm. More of my time is spent on managing the practice and marketing than on servicing clients. I am trying to develop financial goals for the firm but I am clueless as to what financial indicators or ratios I should be looking at and what constitutes good or bad performance. Anything that you are willing to share would be appreciated.

Response: 

Here are what I believe to be key financial indicators/ratios and performance for a firm of your size and type:

• Owner compensation – 40% of gross revenue.
• Overall compensation – 65% of gross revenue.
• Staff and non-equity attorney compensation – 25%-30% of gross revenue.
• Paralegal compensation – 4% of gross revenue.
• Support staff compensation – 15% of gross revenue.
• Marketing – 2.4% of gross revenue – 8%-10% for estate planning firms.
• Rent and other occupancy expense – 7% of gross revenue.
• Reference materials – 1.4% of gross revenue.
• Equipment/technology – 2% of gross income.
• Lawyer income pie (associates and owners) – 59% of gross revenue.
• Other expenses – 10% gross revenue.
• Annual Revenue collected per lawyer – $300,000.
• Annual billable hours – 1500-1600 associates – 1100-1200 paralegals.

I like to see profit margin – owner compensation – salary if paid as w-2 wages plus profit in the range of 35% – 45%.

Performance can vary by type of practice.

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John W. Olmstead, MBA, Ph.D, CMC

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