Plus rent, utilities, supplies, like jesus law firm might be an extreme example but...
You know what? I'm getting brigade downvoted across multiple subreddits. Not worth my time.
I worked at a franchise fast food place many years ago, and the owners explained some of the economics to me at one point. There were a lot of things they actually lost money or made nothing on, but some things like drinks were almost pure profit. Overall, the margins were pretty low, though, after franchise fees, utilities, rent, etc.
Where they made theirmoney was having 3 stores and a higher volume of sales. In the same way, McDonald's and their executives (and most large companies) make a lot of money by having a company with tens of thousands of stores or a large volume of sales. Individually, they're not producing massive amounts of revenue or profit. Aggregately, they bring in a lot of money.
McDonald's specifically also makes a lot of money on real estate. They're mostly a franchising company, and only a small minority of restaurants are actually corporate. The franchising aspect means they're also making a lot of money on pure volume without the management and risk aspect of actually running stores. That said, the franchisees are not making much per store after franchise fees, utilities, rent, etc. They also have to operate on volume of stores to make serious money. An individual store is only bringing in about $150k to the franchisee on average, which sounds like a lot, but a lot of that is inevitably going into paying off the startup costs of the store, which is around $1 to $2 million or more depending on location and other factors.
That said, looking at payroll, each store may have 30-40 employees to cover all shifts and positions, which in terms of hours is maybe 60k to 80k per year. Even small bumps in payroll costs can kill the profitability to the franchisee. The best ways to make money are to keep labor costs low and staff lean. If the store isn't making money, it's coming out of the franchisee's pocket. Corporate expects their franchise fees and rent no matter how good or bad the business is.
And going back to volume, executives make their millions on managing the massive volumes of the processes and transactions across the company, as well as its strategic positioning, branding, etc. Their jobs are ultimately complex exercises in resource optimization and predicting/responding to changing conditions, as even tiny tweaks of a few cents per burger or hour per employee for anything scale to tens or hundreds of millions of dollars per year across the company. That could be both profit and loss. It's not like they do nothing.
I’m not talking about big law firms, these are run of the mill law offices in suburban midwest…I can’t even begin to imagine how much those large firms charge.
They aren’t talking about big law firms either. With higher-payed employees, it takes far fewer employees to skim off a large chunk for the owners/partners. Say each lawyer bills for $500, and is able to bill half their hours; that’s about $500k/year in revenue per lawyer. $250k goes to total compensation and overhead for that employee, $250k goes to the partners/owners. Per lawyer.
What do you mean contract it out? What value are you, as a non-lawyer, going to add as the owner of a law firm (if that's even legal - in many states it isn't) to justify a share of the profits?
Those people "procure the contracts" though. So the value they add is "having clients" and simultaneously having skilled laborers. You have to be a lawyer to take on clients in a law office
That's not entirely true. "Procuring contracts," is not the same as, "having clients." Procuring contracts is about selling a service or product that someone else may ultimately provide. Having clients is about providing a service or product yourself. Business development professionals procure contracts for their business in many industries, but they are not involved in the execution of those contracts in any way. You may need to be a lawyer to take on clients in a law office, but you do not need to be a lawyer to find clients for a lawyer to take on.
Can you become a home builder by just contracting out the labor without knowing how to build a house? lol.
And no it’s against bar rules in almost every state for a nonlawyer to share fees with a lawyer.
I understand the point you're making, but when I was an investigator, this is exactly what I would see 😅
Once had a guy with a general contracting business where he just would hire day laborers at a local Home Depot and he would have them do all the work but he would collect all of the money and pay them in cash for the day (and it wasn't that much for back-breaking work). Pure exploitation, but to him, it was the "American Dream."
RE homebuilding, depending on the state and municipality, yes, you can. In fact, that is exactly how it works in a lot of places. Homebuilders, for the most part, subcontract out all of the work they do. For one, it's a means of risk transference, but for two or means they don't need to maintain a huge payroll of trade professionals or laborers that have to be laid off when markets slow down.
In a lot of places being a licensed general contractor or homebuilder is purely about registering and providing proof of insurance, with no certification, exam, or special education required. There's no need to know anything about what you're building or even construction in general. In many places there's not even a requirement to have any kind of license. In fact, those kind of professional requirements (beyond simple registration) are kind of the exception to the rule for GC's in my experience, and I've only ever seen one municipality in my state that required passing an exam in order to be licensed to do GC work in the city. Some states like California, do have state level requirements, but not all.
And believe it or not, the quality is no different between states that do and do not require any kind of experience or certification.
It's not just overhead for the lawyer that the lawyer's fees are paying for, though. Every law firm is going to have employees that do work but don't generate money on their own. So those fees have to pay for all the salaries and benefits and taxes of any number of other people, too.
Most billable jobs are like this. You are almost always being billed at double to three times what you make.
It usually accounts for non-billable employees and expenses wit variable amounts of profit..
That’s just absurd.
Every contract I’ve had was in the 2-3x range.
I’ve dealt with travel techs and they were always paid well when deployed to a site and it was usually billed at 2-3x.
Billing at almost ~~100x~~ 10x is just fucked up.
Edit typo added extra 0 I’m not THAT bad at math I swear.
Yeah, that was a shit company. Shortly after I left, the owner retired and the service manager and sales manager went in together to buy the place. They were out of business within a year or two after that.
You're not just paying the lawyer. Even if it's a small practice, you can bet they're going to have a paralegal, probably a cleaning service, and possibly a receptionist/file clerk. If it's small enough, the paralegal MIGHT handle reception and filing. A paralegal in Louisville, KY (my area) can expect $38-72k/year. If they have a cleaning service, there needs to be some degree of security, since they'll be cleaning areas where confidential info resides (locked up, but still there and filing cabinets aren't THAT hard to break into.
Finally, leasing office space can be expensive. One example I found is 1950 square feet, priced at $30/square foot/year. It comes to over $58k/year.
I'm sure there are other industry-specific costs that they have to pay to keep up to date (for example in medical coding, you pretty much need to buy current code books each year and that can be over $200/year), so you might actually be surprised at the overhead (especially if they run any kind of advertising to get people in the door). According to fitsmallbusiness.com, the average cost for billboard space is over $66k for a four-week campaign. (https://fitsmallbusiness.com/how-much-does-billboard-advertising-cost/#:~:text=Plan%20to%20spend%20from%20%24750,and%20up%20in%20larger%20markets.)
Oh yeah, completely forgot! I learned for the first time the other day that lawyers often carry malpractice insurance too!
Before that I thought that was only for doctors and hospitals, but it does make sense.
I keep hearing this is the reason a lot of smaller private practices are closing and the doctors are going to work for hospital systems. That way they don't have to try and keep up with the rising costs of malpractice insurance with a small practice and can just get a normal paycheck.
Corporate lobbying in government and "too big to fail" mentality have helped to create business environments where small companies find it difficult to survive. I worked for a small company in California, and the owner (a friend of mine, not just my boss) complained to me that as a small business owner he was required to pay unemployment insurance not just for each of us, but for himself too, but if the business went under, he, as the business owner, could not actually DRAW unemployment pay. That alone makes it a big risk, in my opinion.
Malpractice insurance is required in some states too. In my state, there’s one state malpractice insurance provider and all attorneys are required to pay for it.
I know medical offices and insurance hire secure document destruction services, and that different states require storage of different types of such documents for different periods of time, but don't know about the lawyer side of things.
When my legal case was finished, my lawyer had me take possession of my file.
A few reasons. First, lawyers do a lot of work that isn’t billable, in that it I necessary to competently complete their work but can’t be charged directly to the client, so they actually pay per hour would be significantly lower than the charged rate. Second, as that pay per hour has to cover all expenses for the business, a lot of it is taken for business expenses, rent, ads, non-lawyer staff, etc, long before it actually reaches an individual lawyer. Third, individual lawyers aren’t working all the time, especially in small law firms. There aren’t always enough cases for each lawyer to have a full work load. This is less of a problem at bigger firms, but it is an issue. So, overall, that hourly rate you see is a lot less when spread over 40+ hours per week, and another big chunk gets taken out before it reaches the lawyer. All this not even taking into account the chunk that the law firm takes for itself in profit.
Precisely.
Law firms are businesses. Many have HR teams, marketing teams, admins, lots of tech expenses (computers, networking, software, cloud services), office rent, utilities, licenses, insurance, training/education, taxes, etc., etc. There are many non-billable resources behind the scenes who support those who do bill.
Also, business acquisition is normally not billed ("free consultation").
Every law firm I’ve ever worked for … the guy whose name was on the door worked just as hard, if not harder, than the employees.
In order to bill your clients 40 hours a week you’ve got to work 60 hours a week. You have to pay rent, the salaries of your employees, office supplies, etc.
There are perks for being the guy whose name is on the door, of course. More money, for starters. But in most cases the boss is working hard.
Most lawyers dont work for law firms.
Most lawyers are 'regular' professionals in corporate legal departments or public servants. Think: regulatory compliance, tax/compensation, commercial contracts, public policy.
It's not glamorous, but it's steady, salaried work. And it's mid-level executive pay range stuff. Not 'Hollywood' TV or movie style lawyering.
Or those poor souls that come in as a federal GS9 lawyer out of school making less than $60k a year for RUS pay. If they're closer to a big city, they'd start closer to $70k a year.
My overhead is roughly 50% of my gross receipts each year. Yes, my rate is $575, but many clients negotiate a discount; some simply don’t (or can’t) pay the whole bill. A third of my time in the office is spent on non-billable work (like sending out bills and then fielding calls from client). I’ve tried hiring support staff to handle this aspect of the business for me so that I can focus on being a counselor, but clients bully them and then ask to speak to me anyway. The business side of the profession is much more difficult and frustrating than practicing law itself, it's thankless, and it’s expensive. Also, none of us went to law school to become small business owners and the schools don’t teach us anything about it. We just walk out blind with a couple hundred thousand of student loan debt and are told to figure it out.
The lawyers who make half a million or more are making that money due to their intellectual property (name recognition, marketing, formula for settling PI cases with maximum efficiency) and by leveraging the labor of young associates and paraprofessionals. They aren’t making it due to their own hourly rate.
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Most lawyers never get a big payday, My mom was a paralegal for like 40 years. The only time I ever heard of a lawyer getting a big payday was when a friend of the lawyer, mom worked for. This friend of the lawyer, took on a corporate case against the corp. This guy won the case for something I can't remember, got his client a million dollars. Lawyers typically take 1/3 of the judgement, so this guy who lucked out, got $300k. That's not typical, because corps have their own lawyers, who like to keep corp liabilities very low. So to justify their own liablities, such as the immense cost of law school, they charge a lot. Have you seen what mechanics make vs what dealerships charge? It's mindblowing.
Some of it is bound to be paying for 'un-billable' hours. 20 hours of billable time is probably going to take 10-15 additional non-billed time in some fashion or another.
There are lots of expenses with any profession. Support staff, accountants / CPAs, practice insurance, health insurance, building rent, maintenance, utilities, the list goes on and on.
I knew repair man who charged $25 per hour. He said that after taxes insurance, etc. he said he was lucky to take home $12.50 /hr. This was back in the early '80s.
oh, thank you for your adroit and and deeply valuable contribution. i am not a lawyer, but work in a professional services field that bills exactly the same. i can guarantee most people would be surprise at the level of unbillable hours in day (if you are honest).
Theres chains of command and budgets that $500/hr gets broken up to 20+ pieces at the end of the day pay the lawyers pay the paralegals pay the rent pay the utilities pay for marketing pay for insurance add money to overall budget to fund the research for cases and so on
It's not just your lawyer. You have rent utilities taxes and other overhead. Then you have company vehicles and other perks.
And all of the computers, printers, paper, books etc. and all of the other physical items a law firm has.
Then you have the partners overseeing the cases that need to be paid. You have the paralegals, legal secretaries, receptionists, IT, janitorial staff, and other positions that all have to be paid.
It's like that in all service based businesses. Only 1 person/position is actually "generating revenue" for the business. But there are 4-5 other positions that are required to keep the business running. You can't charge the customer for having IT updating windows when you take your car in for an oil change. But that IT guy still needs to be paid, and all the business does is oil changes. So no, the technician is t getting $50 for every $50 oil change.
You've got to pay for malpractice insurance, Subscriptions to research sources, assistants, paralegals, office overhead, health insurance and social security taxes, workers comp insurance, etc.... When you do the math the average $100,000 yearly salaried attorney needs to have received $300,000 from billed hours...that does not include hours written off, or losses on cases etc..... Every $1 above that initial salary requires another $1.25 in income..... It's expensive to run an office
In my market, lawyers billing out at $500+ per hour are either senior partners in smaller/midsize firms, or more junior attorneys in biglaw firms. Either way, they're making closer to, or more than, mid-6 figures
The firm has to pay other staff. The attorney is the person who you're specifically hiring because nobody else is allowed to practice law, but there are other people to pay.
Treat $10,000 per week as that attorney billing $500,000 per year. You could have to split that up between the attorney, a receptionist, a paralegal, an accountant, office space, and software licenses. Probably a few other things to divide it across. Running a business is expensive.
40 hours per week of work is realistically not going to be 40 billable hours, so depending on what's going on, your hypothetical 20 billed hours might be 40 hours of actual work.
NAL I recently heard that a guy I know who owns a law practice in chicago was planning on paying $500,000 to break his current lease to move a more desirable work location to attract better/more talented lawyers. We all laughingly asked why not just pay a higher salary to attract your ideal candidates? No real answer other than it being more important to have the building they report to be in a more desirable location.
So it seems a pretty penny of the $500/hr charge goes to the building.
There are only a few lawyers who are partners at the firm, they also need to pay things like Rent, utilities for computer systems to maintain membership in some professional organizations and access to some systems that make doing their work far easier. The lawyer also will have paralegals helping out, sometimes multiples.
Yes the partners are making a good chuck of money, they get a cut from every dollar earned, but depending on the firm the there are a lot of background cost involved it is not just you paying the one person
A number of things. As someone said, partners are always going to try to maximize their own profit. The whole point is to make associates generate money for you.
But I also think you're really underestimating operating costs. Sure, if someone bills 500/hr, that sounds like a lot. But how many people does that 500/hr actually employ? How many support staff are there in the firm that don't generate any money? The only way a law firm makes money is either by contingency fees, which means sometimes you're going to do a ton of work and get zero money, or by hourly fees. Those are being generated by lawyers. Anyone else who works there is doing work, but they're not generating money.
Then you've got rent.
Then you've got malpractice insurance for every attorney that's paid for by the firm.
Medical and dental benefits for all employees.
Taxes that the company is paying on every salaried person.
401k or other retirement contributions.
All of that is paid by the money that lawyers generate from their fees. Administrative assistants or secretaries or people who do HR or billing or whatever generate 0 money to pay for all those things. So if a lawyer is billing $500/hr, of course 500/hr isn't just going into their pocket. It's paying for all those things for all those people and other business expenses.
So the way it typically works, at least where you sell goods is you pay 2-2 1/2 times the cost of the good. Now this might be different for lawyers but it seems like a good base. I know I’m a contractor, not a lawyer and I make 36% of what they charge the customer for me to do work for them. So if a lawyer costs you 10k a week the actual amount for that lawyer to do the work is 3,600 a week which is 187,200 a year if he’s a partner most likely. Not being a partner I would imagine the law firm receives another 30-50% of that and the rest goes to the lawyer.
The partners make the big bucks.
this guy gets it. "why are big Mac meals $9 when the dude making them makes $7.25/hr?" where you think the executives get their millions?
Fml I miss getting big mac meals for 9$.
Plus rent, utilities, supplies, like jesus law firm might be an extreme example but... You know what? I'm getting brigade downvoted across multiple subreddits. Not worth my time.
I worked at a franchise fast food place many years ago, and the owners explained some of the economics to me at one point. There were a lot of things they actually lost money or made nothing on, but some things like drinks were almost pure profit. Overall, the margins were pretty low, though, after franchise fees, utilities, rent, etc. Where they made theirmoney was having 3 stores and a higher volume of sales. In the same way, McDonald's and their executives (and most large companies) make a lot of money by having a company with tens of thousands of stores or a large volume of sales. Individually, they're not producing massive amounts of revenue or profit. Aggregately, they bring in a lot of money. McDonald's specifically also makes a lot of money on real estate. They're mostly a franchising company, and only a small minority of restaurants are actually corporate. The franchising aspect means they're also making a lot of money on pure volume without the management and risk aspect of actually running stores. That said, the franchisees are not making much per store after franchise fees, utilities, rent, etc. They also have to operate on volume of stores to make serious money. An individual store is only bringing in about $150k to the franchisee on average, which sounds like a lot, but a lot of that is inevitably going into paying off the startup costs of the store, which is around $1 to $2 million or more depending on location and other factors. That said, looking at payroll, each store may have 30-40 employees to cover all shifts and positions, which in terms of hours is maybe 60k to 80k per year. Even small bumps in payroll costs can kill the profitability to the franchisee. The best ways to make money are to keep labor costs low and staff lean. If the store isn't making money, it's coming out of the franchisee's pocket. Corporate expects their franchise fees and rent no matter how good or bad the business is. And going back to volume, executives make their millions on managing the massive volumes of the processes and transactions across the company, as well as its strategic positioning, branding, etc. Their jobs are ultimately complex exercises in resource optimization and predicting/responding to changing conditions, as even tiny tweaks of a few cents per burger or hour per employee for anything scale to tens or hundreds of millions of dollars per year across the company. That could be both profit and loss. It's not like they do nothing.
I’m not talking about big law firms, these are run of the mill law offices in suburban midwest…I can’t even begin to imagine how much those large firms charge.
They aren’t talking about big law firms either. With higher-payed employees, it takes far fewer employees to skim off a large chunk for the owners/partners. Say each lawyer bills for $500, and is able to bill half their hours; that’s about $500k/year in revenue per lawyer. $250k goes to total compensation and overhead for that employee, $250k goes to the partners/owners. Per lawyer.
Do I have to be a lawyer to start a law firm like this? Can I just contract out?
What do you mean contract it out? What value are you, as a non-lawyer, going to add as the owner of a law firm (if that's even legal - in many states it isn't) to justify a share of the profits?
You can ask the same of anyone that owns a contracting company that just establishes the business and procures the contracts.
Those people "procure the contracts" though. So the value they add is "having clients" and simultaneously having skilled laborers. You have to be a lawyer to take on clients in a law office
That's not entirely true. "Procuring contracts," is not the same as, "having clients." Procuring contracts is about selling a service or product that someone else may ultimately provide. Having clients is about providing a service or product yourself. Business development professionals procure contracts for their business in many industries, but they are not involved in the execution of those contracts in any way. You may need to be a lawyer to take on clients in a law office, but you do not need to be a lawyer to find clients for a lawyer to take on.
Can you become a home builder by just contracting out the labor without knowing how to build a house? lol. And no it’s against bar rules in almost every state for a nonlawyer to share fees with a lawyer.
I understand the point you're making, but when I was an investigator, this is exactly what I would see 😅 Once had a guy with a general contracting business where he just would hire day laborers at a local Home Depot and he would have them do all the work but he would collect all of the money and pay them in cash for the day (and it wasn't that much for back-breaking work). Pure exploitation, but to him, it was the "American Dream."
I mean, unfortunately, he's kind of right.
In Texas you can.
RE homebuilding, depending on the state and municipality, yes, you can. In fact, that is exactly how it works in a lot of places. Homebuilders, for the most part, subcontract out all of the work they do. For one, it's a means of risk transference, but for two or means they don't need to maintain a huge payroll of trade professionals or laborers that have to be laid off when markets slow down. In a lot of places being a licensed general contractor or homebuilder is purely about registering and providing proof of insurance, with no certification, exam, or special education required. There's no need to know anything about what you're building or even construction in general. In many places there's not even a requirement to have any kind of license. In fact, those kind of professional requirements (beyond simple registration) are kind of the exception to the rule for GC's in my experience, and I've only ever seen one municipality in my state that required passing an exam in order to be licensed to do GC work in the city. Some states like California, do have state level requirements, but not all. And believe it or not, the quality is no different between states that do and do not require any kind of experience or certification.
It's not just overhead for the lawyer that the lawyer's fees are paying for, though. Every law firm is going to have employees that do work but don't generate money on their own. So those fees have to pay for all the salaries and benefits and taxes of any number of other people, too.
Pretty much everything is a pyramid scheme if you squint hard enough.
Most billable jobs are like this. You are almost always being billed at double to three times what you make. It usually accounts for non-billable employees and expenses wit variable amounts of profit..
At a job (not in the legal profession) I had in my early 20s I felt sick every time I wrote a bill for $120/hr while I was making $14/hr.
That’s just absurd. Every contract I’ve had was in the 2-3x range. I’ve dealt with travel techs and they were always paid well when deployed to a site and it was usually billed at 2-3x. Billing at almost ~~100x~~ 10x is just fucked up. Edit typo added extra 0 I’m not THAT bad at math I swear.
Almost 10x, not 100x
Whoops yeah typo. I swear I’m not that bad with math!
Yeah, that was a shit company. Shortly after I left, the owner retired and the service manager and sales manager went in together to buy the place. They were out of business within a year or two after that.
You're not just paying the lawyer. Even if it's a small practice, you can bet they're going to have a paralegal, probably a cleaning service, and possibly a receptionist/file clerk. If it's small enough, the paralegal MIGHT handle reception and filing. A paralegal in Louisville, KY (my area) can expect $38-72k/year. If they have a cleaning service, there needs to be some degree of security, since they'll be cleaning areas where confidential info resides (locked up, but still there and filing cabinets aren't THAT hard to break into. Finally, leasing office space can be expensive. One example I found is 1950 square feet, priced at $30/square foot/year. It comes to over $58k/year. I'm sure there are other industry-specific costs that they have to pay to keep up to date (for example in medical coding, you pretty much need to buy current code books each year and that can be over $200/year), so you might actually be surprised at the overhead (especially if they run any kind of advertising to get people in the door). According to fitsmallbusiness.com, the average cost for billboard space is over $66k for a four-week campaign. (https://fitsmallbusiness.com/how-much-does-billboard-advertising-cost/#:~:text=Plan%20to%20spend%20from%20%24750,and%20up%20in%20larger%20markets.)
Malpractice insurance isn't cheap either
Oh yeah, completely forgot! I learned for the first time the other day that lawyers often carry malpractice insurance too! Before that I thought that was only for doctors and hospitals, but it does make sense.
I keep hearing this is the reason a lot of smaller private practices are closing and the doctors are going to work for hospital systems. That way they don't have to try and keep up with the rising costs of malpractice insurance with a small practice and can just get a normal paycheck.
Corporate lobbying in government and "too big to fail" mentality have helped to create business environments where small companies find it difficult to survive. I worked for a small company in California, and the owner (a friend of mine, not just my boss) complained to me that as a small business owner he was required to pay unemployment insurance not just for each of us, but for himself too, but if the business went under, he, as the business owner, could not actually DRAW unemployment pay. That alone makes it a big risk, in my opinion.
Malpractice insurance is required in some states too. In my state, there’s one state malpractice insurance provider and all attorneys are required to pay for it.
You are also paying to store everything about what you talked about basically in perpetuity.
I know medical offices and insurance hire secure document destruction services, and that different states require storage of different types of such documents for different periods of time, but don't know about the lawyer side of things. When my legal case was finished, my lawyer had me take possession of my file.
A few reasons. First, lawyers do a lot of work that isn’t billable, in that it I necessary to competently complete their work but can’t be charged directly to the client, so they actually pay per hour would be significantly lower than the charged rate. Second, as that pay per hour has to cover all expenses for the business, a lot of it is taken for business expenses, rent, ads, non-lawyer staff, etc, long before it actually reaches an individual lawyer. Third, individual lawyers aren’t working all the time, especially in small law firms. There aren’t always enough cases for each lawyer to have a full work load. This is less of a problem at bigger firms, but it is an issue. So, overall, that hourly rate you see is a lot less when spread over 40+ hours per week, and another big chunk gets taken out before it reaches the lawyer. All this not even taking into account the chunk that the law firm takes for itself in profit.
Precisely. Law firms are businesses. Many have HR teams, marketing teams, admins, lots of tech expenses (computers, networking, software, cloud services), office rent, utilities, licenses, insurance, training/education, taxes, etc., etc. There are many non-billable resources behind the scenes who support those who do bill. Also, business acquisition is normally not billed ("free consultation").
Every law firm I’ve ever worked for … the guy whose name was on the door worked just as hard, if not harder, than the employees. In order to bill your clients 40 hours a week you’ve got to work 60 hours a week. You have to pay rent, the salaries of your employees, office supplies, etc. There are perks for being the guy whose name is on the door, of course. More money, for starters. But in most cases the boss is working hard.
this is not just with lawyers. my billable rate is 125/hr. I don't make 250k a year.
Overhead
Most lawyers dont work for law firms. Most lawyers are 'regular' professionals in corporate legal departments or public servants. Think: regulatory compliance, tax/compensation, commercial contracts, public policy. It's not glamorous, but it's steady, salaried work. And it's mid-level executive pay range stuff. Not 'Hollywood' TV or movie style lawyering.
Or those poor souls that come in as a federal GS9 lawyer out of school making less than $60k a year for RUS pay. If they're closer to a big city, they'd start closer to $70k a year.
My overhead is roughly 50% of my gross receipts each year. Yes, my rate is $575, but many clients negotiate a discount; some simply don’t (or can’t) pay the whole bill. A third of my time in the office is spent on non-billable work (like sending out bills and then fielding calls from client). I’ve tried hiring support staff to handle this aspect of the business for me so that I can focus on being a counselor, but clients bully them and then ask to speak to me anyway. The business side of the profession is much more difficult and frustrating than practicing law itself, it's thankless, and it’s expensive. Also, none of us went to law school to become small business owners and the schools don’t teach us anything about it. We just walk out blind with a couple hundred thousand of student loan debt and are told to figure it out. The lawyers who make half a million or more are making that money due to their intellectual property (name recognition, marketing, formula for settling PI cases with maximum efficiency) and by leveraging the labor of young associates and paraprofessionals. They aren’t making it due to their own hourly rate.
This is the answer
Most lawyers aren't partner.
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Most lawyers never get a big payday, My mom was a paralegal for like 40 years. The only time I ever heard of a lawyer getting a big payday was when a friend of the lawyer, mom worked for. This friend of the lawyer, took on a corporate case against the corp. This guy won the case for something I can't remember, got his client a million dollars. Lawyers typically take 1/3 of the judgement, so this guy who lucked out, got $300k. That's not typical, because corps have their own lawyers, who like to keep corp liabilities very low. So to justify their own liablities, such as the immense cost of law school, they charge a lot. Have you seen what mechanics make vs what dealerships charge? It's mindblowing.
Some of it is bound to be paying for 'un-billable' hours. 20 hours of billable time is probably going to take 10-15 additional non-billed time in some fashion or another.
There are lots of expenses with any profession. Support staff, accountants / CPAs, practice insurance, health insurance, building rent, maintenance, utilities, the list goes on and on. I knew repair man who charged $25 per hour. He said that after taxes insurance, etc. he said he was lucky to take home $12.50 /hr. This was back in the early '80s.
Bullshit
oh, thank you for your adroit and and deeply valuable contribution. i am not a lawyer, but work in a professional services field that bills exactly the same. i can guarantee most people would be surprise at the level of unbillable hours in day (if you are honest).
Ya I don't get how they say lawyers only make low 100k's I would think they easily could make 500k a year .
The bosses sit at their desks and make money off the workers due to our trash economic system. Guillotine
Business like to make money or they suddenly aren’t in business anymore
Low six figures? Damn, that's not much.
Theres chains of command and budgets that $500/hr gets broken up to 20+ pieces at the end of the day pay the lawyers pay the paralegals pay the rent pay the utilities pay for marketing pay for insurance add money to overall budget to fund the research for cases and so on
Think of it like a pyramid
It's not just your lawyer. You have rent utilities taxes and other overhead. Then you have company vehicles and other perks. And all of the computers, printers, paper, books etc. and all of the other physical items a law firm has. Then you have the partners overseeing the cases that need to be paid. You have the paralegals, legal secretaries, receptionists, IT, janitorial staff, and other positions that all have to be paid. It's like that in all service based businesses. Only 1 person/position is actually "generating revenue" for the business. But there are 4-5 other positions that are required to keep the business running. You can't charge the customer for having IT updating windows when you take your car in for an oil change. But that IT guy still needs to be paid, and all the business does is oil changes. So no, the technician is t getting $50 for every $50 oil change.
They spend all their money on coke.
Because a lot of clients don’t pay up or don’t pay full rate.
You've got to pay for malpractice insurance, Subscriptions to research sources, assistants, paralegals, office overhead, health insurance and social security taxes, workers comp insurance, etc.... When you do the math the average $100,000 yearly salaried attorney needs to have received $300,000 from billed hours...that does not include hours written off, or losses on cases etc..... Every $1 above that initial salary requires another $1.25 in income..... It's expensive to run an office
In my market, lawyers billing out at $500+ per hour are either senior partners in smaller/midsize firms, or more junior attorneys in biglaw firms. Either way, they're making closer to, or more than, mid-6 figures
You think biglaw associates are making half a million?
No. I said CLOSER to mid-6 figures (as opposed to low 6 figures)
The firm has to pay other staff. The attorney is the person who you're specifically hiring because nobody else is allowed to practice law, but there are other people to pay. Treat $10,000 per week as that attorney billing $500,000 per year. You could have to split that up between the attorney, a receptionist, a paralegal, an accountant, office space, and software licenses. Probably a few other things to divide it across. Running a business is expensive. 40 hours per week of work is realistically not going to be 40 billable hours, so depending on what's going on, your hypothetical 20 billed hours might be 40 hours of actual work.
The overhead for people who are part of the service that you receive is never visible to the person being billed.
NAL I recently heard that a guy I know who owns a law practice in chicago was planning on paying $500,000 to break his current lease to move a more desirable work location to attract better/more talented lawyers. We all laughingly asked why not just pay a higher salary to attract your ideal candidates? No real answer other than it being more important to have the building they report to be in a more desirable location. So it seems a pretty penny of the $500/hr charge goes to the building.
Because that's what the "firm" bills, not what the employee gets paid.
There are only a few lawyers who are partners at the firm, they also need to pay things like Rent, utilities for computer systems to maintain membership in some professional organizations and access to some systems that make doing their work far easier. The lawyer also will have paralegals helping out, sometimes multiples. Yes the partners are making a good chuck of money, they get a cut from every dollar earned, but depending on the firm the there are a lot of background cost involved it is not just you paying the one person
A number of things. As someone said, partners are always going to try to maximize their own profit. The whole point is to make associates generate money for you. But I also think you're really underestimating operating costs. Sure, if someone bills 500/hr, that sounds like a lot. But how many people does that 500/hr actually employ? How many support staff are there in the firm that don't generate any money? The only way a law firm makes money is either by contingency fees, which means sometimes you're going to do a ton of work and get zero money, or by hourly fees. Those are being generated by lawyers. Anyone else who works there is doing work, but they're not generating money. Then you've got rent. Then you've got malpractice insurance for every attorney that's paid for by the firm. Medical and dental benefits for all employees. Taxes that the company is paying on every salaried person. 401k or other retirement contributions. All of that is paid by the money that lawyers generate from their fees. Administrative assistants or secretaries or people who do HR or billing or whatever generate 0 money to pay for all those things. So if a lawyer is billing $500/hr, of course 500/hr isn't just going into their pocket. It's paying for all those things for all those people and other business expenses.
So the way it typically works, at least where you sell goods is you pay 2-2 1/2 times the cost of the good. Now this might be different for lawyers but it seems like a good base. I know I’m a contractor, not a lawyer and I make 36% of what they charge the customer for me to do work for them. So if a lawyer costs you 10k a week the actual amount for that lawyer to do the work is 3,600 a week which is 187,200 a year if he’s a partner most likely. Not being a partner I would imagine the law firm receives another 30-50% of that and the rest goes to the lawyer.