[TRANSCRIPT] Billable Hours and Law Firm Economics: What Every Attorney Needs to Understand to get Ahead | BCGSearch.com

[TRANSCRIPT] Billable Hours and Law Firm Economics: What Every Attorney Needs to Understand to get Ahead


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Welcome to this webinar on billable hours and law firm economics. This topic may not seem as engaging as others, but it is one of the most crucial aspects of practicing law in a firm. Many partners and associates fail to understand that the ultimate objective in any law firm is to generate revenue. The more money you make for the law firm, the more successful you will be.

Understanding the importance of making money for the law firm is vital. If you don’t make money for the firm, you won't last long. The people who bring in the most revenue have the most job security. My goal today is to help you understand how to achieve job security and financial success in a law firm.
Many successful attorneys grasp this concept early in their careers and excel. However, without this understanding, you will face numerous challenges. Both partners and associates need to comprehend these principles for better career outcomes.
Let’s discuss the potential you have if you understand how to make money for a law firm. Some lawyers in law firms earn over 10 million dollars a year by mastering these principles. This knowledge applies regardless of your practice area. If you work in a law firm that bills for your time, you can thrive by understanding these rules.
A simple analogy: a law firm operates similarly to a business, like a hot dog vendor. Both are selling something. In a law firm, you sell your time. Successful partners often see new associates as lacking an understanding of the business aspects of the legal profession, especially those who have never worked in other businesses.
Partners bring in clients willing to pay for billable hours, and associates perform billable work for these clients. The revenue from billable hours covers overhead costs, such as office expenses, support staff salaries, and other associates’ salaries. It also contributes to the partners' income.
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As an associate, you start by focusing on billing hours. Over time, you need to shift your focus to bringing in clients and generating business. Initially, you are expected to bill hours, but eventually, you need to develop business generation skills.
For example, I often review candidate accounts and notice that many with several years of experience struggle to survive because they haven’t transitioned to bringing in clients. As associates gain experience, their billing rates increase, making it harder for them to compete with partners who prefer to handle work themselves.
From the beginning of your career, think about how to bring in clients. Small firms might require you to generate business right away. In large firms, you need to shift from doing the work to generating business to ensure long-term success.
Being on a partnership track means developing the skills to bring in business. If you don't want this pressure, you could consider roles like contractor or staff attorney, where there is less emphasis on bringing in work. However, as an associate doing good work, you can become eligible for partnership.
It’s important to understand the difference between equity and non-equity partners. Equity partners bring in business, generate wealth, and share in the firm's profits. Non-equity partners may do excellent work but don’t have the same business generation responsibilities or share in profits. They often have some job security but are expected to eventually bring in business.
Many non-equity partners struggle to bring in business and may lose their positions if work slows down. They might move in-house or find other firms willing to give them work despite not having their clients.
As an associate, you are expected to do the work. You can become a non-equity partner without bringing in business or an equity partner by generating your own business. Equity partners have more job security and the ability to take clients to other firms.
Generating business means the law firm starts working for you by providing overhead, brand support, and associates. This is the ideal role everyone should aspire to. Even non-equity partners should aim to develop business generation skills.
The people who bring in work are more valuable than those who only do the work. This principle applies universally, including in law firms. Attorneys often mistakenly believe that doing good work is enough. However, success requires developing sales skills to bring in work.
Sales skills are crucial in all aspects of life, including law. Persuasion is key, whether convincing someone to hire you, work with you, or take a certain action. Successful attorneys understand this and focus on developing these skills.
Talking to a senior associate recently, I emphasized the importance of not just doing the work but also positioning oneself as an expert and finding potential clients. Developing these skills is crucial for career flexibility and control in practicing law. Just being good at your job does not guarantee success.
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Many attorneys struggle because they haven't developed business generation skills. This realization is often a hard lesson learned too late. It’s essential to understand this early in your career to avoid these challenges and achieve lasting success in the legal profession.
I had a conversation not too long ago with this guy who was a senior associate in litigation at a law firm. He was trying to get jobs in New York, and he was outside of his office on the phone. He was disappointed that none of the large law firms wanted to talk to him. He felt his career was over because he couldn't get interviews. He wasn't getting interviews because law firms at his level and the type he was applying to were not interested in him. He could get a job if he looked at other types of firms, but the law firms he wanted to work in were not interested. He felt a tremendous sense of lack and upset about this because he didn't even have security at his own firm.
I've had non-equity partners lose their jobs, and it's hard. You have a house; you have a family. Without this business, things don't go well. So, you need to think about what you can do to put yourself in a position to succeed, regardless of your level. Your first five years of practice in a firm are about becoming technically proficient. If you're good at the technical skills of your job, you can certainly stay at a place for 8 years, but that's not enough. You need marketing skills, the ability to bring in business, and have your own work. Your ability to find clients and these relationship skills are more important than being technically proficient at what you do.
I have a candidate right now who is very interesting. He's a litigator but has brought in clients that do land use work, which isn't related to litigation. He gives that work to other partners in his firm, giving him employment stability. He has strong relationships with people doing land use work, and he met them surfing. He calls them every week to check in, and this relationship is more important than being technically proficient. Employment security as a litigator depends on these relationships, not just on doing the work for clients.
You have to be a good lawyer, but your most important skills are sales and social skills with clients. Without these, you won't succeed. I have another candidate who is a patent agent. We represent patent agents because they can practice before the trademark office and write patents, similar to patent attorneys. This patent agent has $3 million in business from one client, giving him incredible employment security. He moves between firms, and everyone wants to hire him because of his business and relationships.
I've seen partners get clients from working in nightclubs. You need to understand that law is a business, and no business survives without clients willing to pay for the work you're doing. Bringing in business is the most important thing, not just being technically good at what you do. You can be successful as a lawyer doing any type of work, but the most important skill is bringing in clients.
Some partners spend 2-3 nights a week with potential clients, at dinners, sports events, and concerts. They have relationships and aren't necessarily great lawyers, but their real skill is bringing in business. I remember a partner named Bill Urquhart, who was an incredible business generator due to his relationships. Most of the work he brought in was done by others, but he was successful because of his ability to form relationships and bring in clients.
You can't get lost in the weeds, just doing work and expecting good things to happen. The people who do the work serve those who bring in business. Do you want to serve or also bring in business and do the work? It's critical for a law firm to make money from you and justify your salary. Associates and partners will see who's making what and which firms pay the most.
I was talking to a senior associate an hour ago, considering an offer with more money than he makes now. He was focused on money, which I thought was shortsighted. He should consider if the firm is a place where he can succeed by bringing in business. If you're an eighth-year associate, is the firm paying $290,000 more likely to help you bring in business and succeed than one paying $250,000? You shouldn't just look at money but also where you can succeed.
I've had candidates who could have succeeded at firms by bringing in business rather than just making more money. One candidate had an offer from a firm doing niche election law but chose a large New York firm for double the salary. He burned out after a year and a half, working 2,400-2,500 hours a year, and left the practice of law. He would have had a longer, more stable career if he'd taken the niche firm job, bringing in clients.
At large law firms, you're often worked to death and may struggle to bring in business. Smaller firms might allow you to bring in business and succeed rather than just being a servant to a large firm. If a firm's paying you a lot, they're getting something from you. High pay isn't always the best indicator of a good workplace. You must justify your salary by working a lot of hours if you're not bringing in business.
Front-loading compensation happens at large law firms, where you make a lot early but may never bring in clients. Without clients, you lack employment security and might always depend on others for money. Early career choices can affect your long-term security and control over your career.
Understand what's expected of you in terms of business generation at any law firm. Big firms expect you to do a lot of work, not necessarily bring in business. Smaller firms often offer the opportunity to bring in business, develop skills, and have a more balanced career.
Bringing in business is challenging in most firms, whether it's attracting new clients or securing additional work from existing ones. However, it's crucial for success. People often ask, "How do you bring in business?" There are many sources to consider. Engaging in community activities and groups, making presentations, and networking can all help. Business can come from various sources, and this is what attorneys focus on.
Generating business requires visibility. You can't just stay inside your law firm; you need to get involved in activities that could lead to business opportunities. This means putting yourself in positions where you can network and generate business. For example, I knew an associate who worked in a large New York-based law firm in Los Angeles. He sat on the board of a community hospital, and when the hospital faced major litigation, he was the right person in the right place, which resulted in significant fees and helped him become a partner.
It's essential to continuously think about bringing in business. Your best source of new business is often from existing clients. When you have clients, consider how to secure different types of work from them. This involves finding additional work to keep clients active and money flowing into the firm. Associates can do this by identifying extra tasks for partners, such as additional research or corporate work.
Billable hours are vital. Many people are drawn to pro bono work or non-billable activities like recruiting or writing articles, but firms evaluate you more on billable work. You have limited time, and your goal is to make money for the firm. Focus on tasks that contribute to billable hours. Avoid getting too involved in non-billable activities as they don't help your career as much.
If you don't enjoy billing hours and bringing in clients, consider other career paths. Working in a law firm means generating revenue and finding work to do. If this doesn't appeal to you, alternatives include contract work, in-house positions, public interest, or leaving law altogether. Success in a law firm requires having your own clients and being able to generate work.
My career path reflects this reality. I started at Quinn Emanuel, a firm with abundant work, but I realized I wanted the stability of having my own clients. I moved to another firm where I could bring in business. Eventually, I transitioned to recruiting, which suited me better.
Think seriously about your career goals early on. If you don’t see yourself generating business and working hard in a law firm, it might not be the right fit. Consider if you want to run your career by bringing in business and doing the work or if another path suits you better. The practice of law is about always having work, whether by switching practice areas or finding a niche.
For example, a friend of mine left a big firm to start a personal injury practice, finding it easier to bring in clients in that field. Success in law requires ensuring a steady flow of work. If you don't generate your own business, you remain dependent on others, which can be risky.
Always having work is crucial. In larger firms, aligning yourself with partners who have substantial business can provide stability. However, the ultimate goal is to be able to generate and control your own work. Without this, sustaining a long-term career in law becomes difficult.
I know another guy at Latham and Watkins who worked in the Orange County office, handling M&A transactions with healthcare companies, specifically pharmaceutical companies. He worked under a partner who specialized in these transactions early in his career and continued working for him. When that partner retired, he passed on all his clients to him, providing a steady stream of business. This ensured he always had access to work.
In any law firm, it's crucial to figure out how to continually get access to work. If you can't see a way to consistently get work, your career is over, at least in a law firm. Think about how you will consistently get work and what you will do in your career to ensure you always have work. Working for a company as an in-house counsel can be a way to secure work, but even that is risky.
When you go in-house, you hope the company will always give you work, but that's not always the case. A new CEO might bring in their own legal team or a new general counsel who prefers their own people, which can lead to job loss. Companies can go out of business or merge, which often results in the legal department being let go. Attorneys in companies are often seen as cost centers, making them vulnerable during cutbacks.
It's essential to understand these factors. Billable hours are one thing, but having access to work is crucial. As you become more senior, no one cares about the law school you attended or your reputation as a good attorney. The only thing that matters is your ability to bill hours and have a steady stream of work.
Law firms have expectations for associates regarding billable hours. You need to be productive and understand your hourly requirements. Always aim to bill more than the minimum required to avoid the reputation of doing the bare minimum. For example, if a law firm has an 1800-hour bill requirement, some associates might view it as a worker's expectation and just meet the minimum. However, the associates who bill significantly more hours, like 2500, are seen as more valuable. Billing more hours not only provides job security but also enhances your value to the firm.
I remember when I was at a firm, and I quit; they tried to get me to stay, which was flattering. A partner told me that the person who didn't make partner billed 2600 hours, while the person who did make partner billed 3200 hours. This illustrates how firms measure your value based on your hours.
It's also important to work for clients who actually pay the bills. Sometimes you might work for a junior partner who doesn't have clients with good payment relationships, which can reflect poorly on you. Ensure you work with partners whose hours are collectible, as uncollected hours don't benefit the firm.
Avoid non-billable activities like long lunches, unnecessary meetings, and office socializing. Aim to maximize your billable hours every day, even if it means starting work early to avoid interruptions. Always turn in your hours promptly to ensure clients are billed on time. Late billing can lead to payment delays or non-payment.
Be diligent in tracking every task you perform related to a client and billing for it. Partners usually review hours before they're submitted to clients, so let them decide if adjustments are needed. Don't hesitate to bill for all client-related activities.
In my experience, associates are rarely questioned for billing too many hours. If you accurately bill for all your work, you’re less likely to face issues. This approach ensures you contribute to the firm's profitability.
Remember, as an associate, it's essential to bill as many hours as possible and always consider how to be more profitable for your firm. High billable hours and bringing in business are key to your success.
I knew an associate at Quinn Emanuel who made partner within three years by consistently billing over 3000 hours a year. His dedication made him successful, although it eventually affected his health. Another associate at the same firm, after being passed over for partnership twice, demonstrated his commitment by billing an extraordinary number of hours in a short period, showcasing his dedication.
As an associate, focus on maximizing your billable hours, consistently seeking ways to be more profitable for your firm, and understanding the importance of always having access to work.
I apologize for the earlier disruption. Let’s get back to the Q&A session. I'll pull up a slide for that. One thing I wanted to highlight quickly is a story about a guy who, despite not making partner initially, billed an incredible number of hours. This ultimately led to him becoming a partner in the law firm. This story underscores the importance of billable hours in a law firm.
Now, let's proceed with the Q&A. I apologize for the mix-up with the power outage. This isn't something that normally happens here.
First question: In my firm, there’s been debate about adopting alternative fee agreements instead of relying solely on billable hours. What are your thoughts on the pros and cons of each approach? Have you seen successful examples of firms transitioning away from billable hours? If so, what factors contributed to their success? How can I present the idea of alternative fee agreements to my partners productively?
Honestly, as an associate, it's not really your role to discuss alternative fee agreements with your firm. Partners decide how to bill their clients. You can bring it up, but ultimately, it’s the partners who have control over billing.
As a solo practitioner, I often juggle multiple cases, making it challenging to track my billable hours. Do you have tips for maintaining organized records of my time without feeling overwhelmed? How can I ensure I allocate enough time to each case while maintaining a healthy work-life balance?
As a solo practitioner, it's your responsibility to figure out how to bill clients and maintain organized records. This isn't something I can help with specifically. Regarding work-life balance, you need to manage your clients and cases in a way that suits you best.
Recently, I had a situation where potential clients seemed interested in my services but ended up going with a more senior attorney at the firm. How can I compete with more established attorneys within the firm to attract clients and build my own book of business?
It’s challenging, especially when competing with partners. If partners take credit for bringing in clients, you need to find ways to ensure you get credit. Some firms have policies where partners get credit if they've had prior contact with the client. You need to be in a firm where you can get credit or find ways to ensure you get credit for bringing in clients.
I've heard about the importance of tracking non-billable development activities, but I'm not sure where to start. Can you recommend specific tools or methods for keeping track of networking events, client meetings, and other activities that contribute to building a book of business? I want to demonstrate my value to the firm beyond just billable hours.
Tracking business development activities is important, but firms care most about converting those activities into clients. A successful attorney I know spent significant time developing clients without immediate credit, which eventually led to a substantial book of business. Use your time wisely to ensure non-billable activities lead to client acquisition.
I often find myself torn between prioritizing billable work and investing time in activities that could lead to future business opportunities. How can I strike the right balance between meeting short-term billable hour requirements and focusing on long-term career growth? It feels like I’m stuck in a cycle of constantly chasing billable hours without progress towards partnership.
You need to balance billable work with business development. If you meet or exceed the minimum billable hours required, also focus on business development activities. Integrate client development into your routine to ensure long-term growth.
I've been in my firm a couple of years now and noticed a discrepancy in how billable hours are allocated among associates. How can I ensure my workload is balanced effectively to optimize productivity without burning out?
As a junior or mid-level associate, your productivity is often judged by billable hours. Ensure you communicate with your supervisors about workload balance and seek opportunities to take on work that optimizes your productivity without leading to burnout.
It depends on the firm you're at, and you may burn out, but you need to figure out if that's what you want to do and do your best to build as many hours as you can. If you feel like that's not something you want to do, then you need to do something else. When people talk about burning out, it's often because they aren't enjoying the work they're doing. You should really make sure you're enjoying litigation if that's your focus. If you don't enjoy it, you should consider doing something else with your time or a different type of litigation. This is just how it is when you work in a larger law firm.
In some cases, I've had clients request meetings or consultations over lunch, which typically extends beyond the typical billable hours. How can I approach these situations tactfully to ensure I'm not undervaluing my time while also meeting the client's needs? There are ways to communicate boundaries effectively without jeopardizing the client relationship. Lunches, dinners, and similar events are very important for developing clients. You don't always need to bill for that time because it's a relationship business. Spending time with clients or potential clients is valuable and can lead to more billable hours in the future.
Last question: this webinar, by the way, is not the most interesting one I've done. I think for a lot of people, billable hours is not the most interesting topic, and I will definitely cover a more interesting topic next week. However, this particular webinar is essential for people entering the practice of law because it determines how successful you're going to be. Many people don't understand this.
Someone considering the transition to a contract attorney role is concerned about the potential long-term implications for their career. How do hiring managers and partners perceive contract attorneys in terms of advancement opportunities within the firm or transitioning to other roles? Are there strategies to enhance the marketability of contract attorneys for future career aspirations?
When you decide to become a contract attorney, you're essentially saying that you want to work in a way where there's no expectation of becoming a partner. You're hiring yourself out to do the work for others and getting paid accordingly. Being a contract attorney is not a good position in many respects. Once you're a contract attorney, the odds of becoming a regular attorney within any law firm are very slim.
It's not perceived as a prestigious role. I've seen people from top law schools become contract attorneys, but if the work runs out, they're often let go in favor of associates. A contract attorney role doesn't look good on your resume because it suggests a lack of ambition or interest in being a regular associate with those expectations. It indicates that you prefer a role with less responsibility and fewer opportunities for advancement.
Another danger of being a contract attorney is that the work is typically not as sophisticated as that given to regular attorneys. You'll often do work that other associates don't want to do, which may be more like busywork. To transition to other roles, you would need to find a firm willing to hire a contract attorney as a permanent associate or in another capacity, but that's not easy.
Being a contract attorney often means avoiding the expectations placed on typical associates, but your advancement opportunities are very slim, and it can have long-term implications for your career. Your resume will show you were a contract attorney, which is not the same as being a regular attorney.
There are people who stay as contract attorneys for a long time, sometimes 20-30 years in big law firms, but more often 5-6 years at most. It's a difficult position with limited job security. Bringing in business as a contract attorney is almost unheard of, which is very limiting. The same applies to being a staff attorney; your marketability and advancement opportunities decrease, as does your job security.
Thank you for being on this webinar. This was not the most exciting topic, but it's important. Next week's webinar will be more engaging. I appreciate everyone's time, and I will be back next week. Thank you for being here, and I will talk to everyone then.

About Harrison Barnes

Harrison Barnes is a prominent figure in the legal placement industry, known for his expertise in attorney placements and his extensive knowledge of the legal profession.

With over 25 years of experience, he has established himself as a leading voice in the field and has helped thousands of lawyers and law students find their ideal career paths.

Barnes is a former federal law clerk and associate at Quinn Emanuel and a graduate of the University of Chicago College and the University of Virginia Law School. He was a Rhodes Scholar Finalist at the University of Chicago and a member of the University of Virginia Law Review. Early in his legal career, he enrolled in Stanford Business School but dropped out because he missed legal recruiting too much.

Barnes' approach to the legal industry is rooted in his commitment to helping lawyers achieve their full potential. He believes that the key to success in the legal profession is to be proactive, persistent, and disciplined in one's approach to work and life. He encourages lawyers to take ownership of their careers and to focus on developing their skills and expertise in a way that aligns with their passions and interests.

One of how Barnes provides support to lawyers is through his writing. On his blog, HarrisonBarnes.com, and BCGSearch.com, he regularly shares his insights and advice on a range of topics related to the legal profession. Through his writing, he aims to empower lawyers to control their careers and make informed decisions about their professional development.

One of Barnes's fundamental philosophies in his writing is the importance of networking. He believes that networking is a critical component of career success and that it is essential for lawyers to establish relationships with others in their field. He encourages lawyers to attend events, join organizations, and connect with others in the legal community to build their professional networks.

Another central theme in Barnes' writing is the importance of personal and professional development. He believes that lawyers should continuously strive to improve themselves and develop their skills to succeed in their careers. He encourages lawyers to pursue ongoing education and training actively, read widely, and seek new opportunities for growth and development.

In addition to his work in the legal industry, Barnes is also a fitness and lifestyle enthusiast. He sees fitness and wellness as integral to his personal and professional development and encourages others to adopt a similar mindset. He starts his day at 4:00 am and dedicates several daily hours to running, weightlifting, and pursuing spiritual disciplines.

Finally, Barnes is a strong advocate for community service and giving back. He volunteers for the University of Chicago, where he is the former area chair of Los Angeles for the University of Chicago Admissions Office. He also serves as the President of the Young Presidents Organization's Century City Los Angeles Chapter, where he works to support and connect young business leaders.

In conclusion, Harrison Barnes is a visionary legal industry leader committed to helping lawyers achieve their full potential. Through his work at BCG Attorney Search, writing, and community involvement, he empowers lawyers to take control of their careers, develop their skills continuously, and lead fulfilling and successful lives. His philosophy of being proactive, persistent, and disciplined, combined with his focus on personal and professional development, makes him a valuable resource for anyone looking to succeed in the legal profession.

About BCG Attorney Search

BCG Attorney Search matches attorneys and law firms with unparalleled expertise and drive, while achieving results. Known globally for its success in locating and placing attorneys in law firms of all sizes, BCG Attorney Search has placed thousands of attorneys in law firms in thousands of different law firms around the country. Unlike other legal placement firms, BCG Attorney Search brings massive resources of over 150 employees to its placement efforts locating positions and opportunities its competitors simply cannot. Every legal recruiter at BCG Attorney Search is a former successful attorney who attended a top law school, worked in top law firms and brought massive drive and commitment to their work. BCG Attorney Search legal recruiters take your legal career seriously and understand attorneys. For more information, please visit www.BCGSearch.com.

Harrison Barnes does a weekly free webinar with live Q&A for attorneys and law students each Wednesday at 10:00 am PST. You can attend anonymously and ask questions about your career, this article, or any other legal career-related topics. You can sign up for the weekly webinar here: Register on Zoom

Harrison also does a weekly free webinar with live Q&A for law firms, companies, and others who hire attorneys each Wednesday at 10:00 am PST. You can sign up for the weekly webinar here: Register on Zoom

You can browse a list of past webinars here: Webinar Replays

You can also listen to Harrison Barnes Podcasts here: Attorney Career Advice Podcasts

You can also read Harrison Barnes' articles and books here: Harrison's Perspectives

Harrison Barnes is the legal profession's mentor and may be the only person in your legal career who will tell you why you are not reaching your full potential and what you really need to do to grow as an attorney--regardless of how much it hurts. If you prefer truth to stagnation, growth to comfort, and actionable ideas instead of fluffy concepts, you and Harrison will get along just fine. If, however, you want to stay where you are, talk about your past successes, and feel comfortable, Harrison is not for you.

Truly great mentors are like parents, doctors, therapists, spiritual figures, and others because in order to help you they need to expose you to pain and expose your weaknesses. But suppose you act on the advice and pain created by a mentor. In that case, you will become better: a better attorney, better employees, a better boss, know where you are going, and appreciate where you have been--you will hopefully also become a happier and better person. As you learn from Harrison, he hopes he will become your mentor.

To read more career and life advice articles visit Harrison's personal blog.

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