What’s the Hourly Cost of Running Your Office?
Have you ever sat down and calculated how much it costs per hour to run your law office? I haven’t (though I know what my overhead and expenses are from my tax returns, just haven’t reduced them to an hourly rate). Yet it seems that most of us ought to know that number off the top of our heads given that we bill by the hour.
Anyway, apparently, the ABA has crunched some numbers and found in a
2002 report that it costs $67/hour to run a small law office. That
figure has been cited by Massachusetts lawyers in support of their
argument for higher rates for court appointed lawyers, reported here.
I haven’t been able to access the ABA report, but $67/hr seems awfully
high – it comes to $134,000 per year based on 2000 hours though
presumably that figure includes the lawyer’s salary as well, and a
decent salary at that if you assume $50,000 for overhead. I’d be
interested in seeing a copy of the ABA report, if anyone has access to
it – and if it’s accurate, figuring out ways for attorneys to reduce
that overhead to realize more revenue without increasing client fees.
Update: Here’s the link to the cost analysis that Donna mentions in her comments below. I guess that 50k doesn’t cover overhead if you have a full time legal assistant with benefits.
As it turns out, I did this very recently. I’ve focused my practice in indigent criminal defense work at the state and federal level, with some private work thrown in there. In the state of Wisconsin, private attorneys taking court appointed defense work have been waiting 5 months now for payment of bills submitted after February 1, 2005, because of a payment drought caused by a biennial budget shortage. In the throes of frustration, someone indicated they’d stopped doing the work because the $40/hour didn’t cover the overhead. I disagreed and walked through how I’d reduced costs. You can read all about it in my practice management section of my blog, http://www.primadonna.typepad.com, if you’re inclined. (hope you don’t mind the shameless self-promotion, Carolyn1)
As it turns out, I did this very recently. I’ve focused my practice in indigent criminal defense work at the state and federal level, with some private work thrown in there. In the state of Wisconsin, private attorneys taking court appointed defense work have been waiting 5 months now for payment of bills submitted after February 1, 2005, because of a payment drought caused by a biennial budget shortage. In the throes of frustration, someone indicated they’d stopped doing the work because the $40/hour didn’t cover the overhead. I disagreed and walked through how I’d reduced costs. You can read all about it in my practice management section of my blog, http://www.primadonna.typepad.com, if you’re inclined. (hope you don’t mind the shameless self-promotion, Carolyn1)
Why would you try to express your fixed expenses as an hourly rate? That just induces you to think in terms of billable hours when one of the best things about being a solo is that you can trash your timesheets. Before anyone wastes any time calculating this imaginary number to three decimal places, spend some time over at Verasage.com and learn why hourly pricing never made sense anyway. It’s a historical accident folks – no need to perpetuate it!