Scroll down to read along with the imperfect transcript
In the quest for legal success, many are blinded by the pursuit of partnership and billable hours. As a seasoned professional in the legal profession, I’ve not only experienced the dark side of the billables game, I’ve left it. In this episode, we delve deep into the hidden truths, providing valuable insights to empower you in negotiating your terms and achieving a fulfilling legal career.
Key Takeaways from the Episode
1. Redefining Success: Partnership isn’t the only marker of success; discover alternative paths that prioritize your well-being and impact.
2. The Price of Burnout: Uncover the true cost of billables on your mental health, relationships, and overall quality of life.
3. Negotiating Power: Realize the untapped power you have in negotiating for less work or more flexible arrangements, transforming your professional landscape.
4. Financial Insight: Understand the financial dynamics of law firms, revealing the often-overlooked contribution lawyers make to their firms.
5. Building a Better Practice: Learn practical strategies to reshape your legal practice, from restructuring services to setting fair pricing, breaking free from toxic practices.
Select Quotes from the Episode
“Money will not buy you sleep.”
“Negotiate to do LESS WORK or MORE FLEXIBLE WORK, not to MAKE MORE MONEY.”
“You have a lot more power than you think you do. Start using it. Today.”
Your Next Step
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Imperfect Transcript from this Episode
Alright, so let’s talk about what we came here to talk about: the dark side of billables, and that elusive partner title … year after year.
First things first, let me just say this: a business’s pretty much sole purpose is to make money. Profit.
And when we think of profit, especially these days, we can usually only think of capitalist profit: extraction, scarcity, FOMO, fear-based marketing, and oppression. But what if I told you there was another way to make money? And make profit? And NOT use those capitalist tactics to make that money and profit?
Partnership or owning your own firm isn’t the only signal of success. And so often, what I see is that when only 1-2 people are promoted every year in your firm, you’ll find that rarely are they equity partners. Because equity partners have to put up money, for one, but the other equity partners have to AGREE to take from themselves to give to you, to split their ownership with you. But making Partner isn’t 100% guaranteed, no matter how much you work. And even if you meet all your billable and even if you exceed your billables, maing partner isn’t guaranteed. And even if you make partner, you’ve still got as much work, it’s just DIFFERENT work – it’s then the pressure of bringing in new clients, getting current clients to give you more work, that rainmaking – plus the billables that are expected of you. You’re just charging a higher rate than you were when you were Junior or Associate Counsel.
And when it comes to your clients, money can be an impediment for them in achieving justice. When they come to your firm and need help, but they can’t afford to pay you, that’s why the pro bono suggestions exist in our profession – because they want you to help people who need it. However, if your firm doesn’t have a system built in that your pro bono hours are equivalent to OR COUNT MORE THAN a typical billable hour, then you’re screwed. And those people won’t get the help they need because they don’t reach the threshold of help. There’s a huge gap in the system of people who make too much money to get legal aid, and not enough money to pay for legal services. And the system continues to create these issues … and there’s a better way to do business.
I’ve had a ton of lawyers say that they want the practice of law to be more exclusive. To make the bar exam harder and make it harder to stay licensed. And all that’s because of how hard it is to stay above the fray – to act with integrity. And when you’re thinking about your billables, you have to know: pretty much every lawyer I’ve ever met has considered padding their bills. Not because they’re trying to get one over on people, but because they’re undervalued, feel unworthy, aren’t appreciated, aren’t recognized, aren’t invited to be a part of the discussion – and so they lose hope. And hope is one of the TOP things I want you to have.
The reality of billables and the profit margin that firms make on the average associate (and we’ll look at stats for how much the typical associate gets billed out versus how much is actually paid) – and you can easily see that the power is in the leveraged work, which is why so many lawyers think they can do it better and at least keep the money – which is fine, so long as you don’t do what the Founding Fathers did for the US – bring bad systems along with you. I find that most lawyers, when they hang out their own shingle, they bring the bad and toxic practices from BigLaw with them to Solo Law. And even though they are their own boss, they actually create a monster even worse than when they were working for someone else. And that’s why most solo lawyers peruse the LinkedIn job postings regularly, fantasizing about going back to a toxic place – because they created one for themselves. A lot of the work I am doing is UNDOING that toxicity, choosing the types of law that really light them up and letting go of what doesn’t. I’m helping them restructure their services and pricing, and when I’m helping law firm clients, 95% of the time, it’s helping them get systems in place – intake, screening, scheduling, templates, etc. – to weed out the bad kids, so they don’t have to say no – and they only say YES to the right clients, the right work, and the right pay.
So, next, let’s look into the realities of the numbers and calculations – and don’t forget about LAWYER MATH! You’ve heard of girl math and boy math and apparently, lawyer math is also a thing. I saw something on Instagram a while back on Instagram – @AttorneyHeadlines – about lawyer math and it was so on point. One of the things that I loved about the this reel I saw was that the very first thing was about how lawyer math is being told that your annual billing requirements are 1800 hours and then when you bill 1800 hours, you’re told you’re a slacker. Another was that lawyer math is taking 10 seconds to read an email, but then billing 6 minutes for it and then it actually takes you two minutes to enter your time. And the one that I cackled about the most? Lawyer math is being told you have unlimited PTO and then never taking the PTO because you can’t do that AND make your billable hours, or, if you do take it, then you’re treated like crap BECAUSE you took your PTO. Because you know that’s true in a lot of places. Another comment from @juliebeeekstewart said that lawyer math is being in court and any time numbers are mentioned, both lawyers and the judge say, “sorry sorry this is why I went to law school” at the same time, or that lawyer math is driving an hour to a courthouse for an in-person pretrial hearing that last 5 minutes … that could have been over zoom. I will link that reel in the show notes, because you’ve got to watch it.
Alright. So let’s get into the math.
First things first, when we’re talking about billable hours, I’m talking about a number that’s set by the firm IN WRITING. If your firm does NOT have an expectation IN WRITING, then you have NO BILLABLE MINIMUM REQUIRED. Let me repeat that again: If your firm has nothing in writing about how many billable hours are required each year, then you have NO requirement.
And this is where we get into expectations that we THINK others have of us. Your colleague down the hall works 6 am to 10 pm, but that’s their problem, not yours. Your colleague at another firm has a billable requirement of 1900, 2200 hours a year – that’s their problem, not yours. You wouldn’t believe HOW MANY LAWYERS I HAVE MET who do NOT have a billable requirement. They just picked a number out of the sky, or someone who did their orientation gave them a ballpark number, and that’s the number they went with. If this is the case for you, I need you to stop, right now.
HOWEVER, if you do have a written expectation of billables, then you have several choices: (1) meet it, do the minimum, (2) exceed it, go above and beyond – but be sure the reason you’re doing that is clear, or (3) reject or negotiate what’s expected of you. Yes, you’re allowed to negotiate your billables. This is what no one tells you.
Lawyers at big law firms are typically paid through a combination of hourly billing and a fixed salary. The hourly billing component generally comes from the fees that the firm charges its clients for the work that the lawyer performs. The fixed salary component is typically based on the lawyer’s experience and expertise, and is intended to provide a stable and consistent income. Some firms may also offer performance-based bonuses, which sometimes are connected to those hourly fees, as well. But when you own your own firm, you’re the one setting your fees, and generally, we tend to set the fees based on what we charged out at the last place we worked – or, we charge less because we think we don’t have experience – which is always a wacky thing to hear, btw. When you own your own firm, you have to account for more than just your physical work. You’ve got overhead, you’ve got expenses, utilities, maybe a contractor or employee or two, but you also have taxes and your own takehome salary. And the biggest mistake I see Solo lawyers make is not including a profit margin in their pricing. But that’s a different episode altogether … or a VIP Day to work all that out for you.
Alright, so here’s the math.
For brevity purposes, we will assume that we’re just talking about associates here, okay, and associates who are on salary and theoretically, eligible for bonuses. If you’re a partner or of counsel and you’re concerned about your compensation, then let’s talk offline.
So, on any given day, a lawyer working in a firm in a city is probably making somewhere between 79 thousand and 135 thousand. If you’re above that, bravo. If you’re under that, something needs to change … because 79 in this economy is not going to cut it for you to do much more than survive.
So, let’s talk about the MATH BEHIND BONUSES, and then I’ll talk about the MATH BEHIND YOUR SALARY & YOUR VALUE TO THE FIRM.
Let’s say the minimum hours at your firm 1800. And if you bill at 2000 or more, for the sake of easy numbers, let’s say you get a bonus. Now, most firms will not tell you WHAT or HOW MUCH the bonus will be, and it’s often discretionary – it’s not a given. So, let’s say last year, you got a bonus of $9,000. If you did the 2000 hours, you did 200 more hours than required – 1800 hours – so you worked for $45 extra an hour, and it’ll be taxed at a bonus rate of 40% by the IRS, which means you actually only takehome 60% of $45 an hour – which is $27 an hour. Is it worth it to you to work more, miss your family and your friends and your kids and your sleep … for the equivalent of an extra $450 a month? That’s the question.
But there’s more than just this in the bonus math. Let’s talk about what your salary is.
You know darn well what you’re getting billed out at, so you can go back and do this math, okay? Let’s say, for easy numbers, they’re billing you out to clients at $325 an hour. Let’s say you’re BILLING 1800 hours a year. Now, we all know that you’re not actually WORKING 1800 hours a year, because you know it takes 1.5 to 1.75 times the amount of time to bill an hour to a client – and at the upper limit if you haven’t been sleeping and taking care of yourself, so you can focus properly. If you’re billing 1800 hours a year, then you’re probably working something close to 2700 hours a year, and if you’re not taking care of yourself, you’re probably working closer to 3 thousand 150 hours a year. On average, that’s somewhere between 54 and 63 hours a week, hoping that you at least take two weeks off a year for a vacation (which maybe you’re not doing). So, we’ve got 54-63 hours a week, on the low end … assuming you’re doing the bare minimum.
But if your salary is $125,000, let’s say, your takehome is probably around $95,000 – around $8,000 a month. And if that’s the case, I wanna know what you’re doing with that money … hopefully socking it away so you can get out of that firm quickly, but that’s a conversation for another day.
So, let’s pretend you’re taking home 8 grand a month. Awesome, but you’re working 60 hours a week to make that happen. That’s 240 hours on average a month, which is, on takehome – about $33 an hour.
This is usually when lawyers say they’re going to strike out on their own. Why? Because they know how much the firm is charging out for them! You’re taking home $33 an hour, but they’re charging you out at $350. Which means … even being generous … your work is producing $225-$275 an hour in pure profit. So where does that money go? Assuming you’re billing 1800 hours, you’re making the firm a flat out $630,000 before taxes. And you’re taking home 90 of that.
This is why lawyers strike out on their own – because they want a piece of that pie. This is also why lawyers believe that making partner is their key to financial success – because they want a piece of that pie.
But by the time you get there, if you’re so burned out and so stressed and you have no relationships left to care for – is it worth it?
THAT is the dark side of billables.
Usually lawyers do the math of how much they make by the hour, but they don’t take it a step further to see how much they MAKE THEIR FIRM.
And if you want to talk more about this, or how to map out your negotiations, you know where to find me. But I’ll just say this – negotiate to do LESS WORK OR MORE FLEXIBLE WORK, not to MAKE MORE MONEY. Money will not buy you sleep.
You have a lot more power than you think you do. SO start using it. Today. Make a plan, script out your argument, and negotiate what you need – because they need you waaaaay more than you need them.