How Law Firms Make Money from their Attorneys and Clients: A Guide to Law Firm Economics for Attorneys

Description

22.03.22 - How Law Firms Make Money from their Attorneys and Clients: A Guide to Law Firm Economics for Attorneys
[00:00:00] Okay. So yeah. Today's, webinar's going to be about how law firms make money. And if you're working inside of a law firm, it's important to understand that the more things that you do that are related to helping the law firm make money, the more the law firm is going to value, and the less likely you are to be let go, when things go bad.
And the more likely you are actually to be promoted the more money you're able to make the law firms. Understanding the economics of a law firm and how things work is really one of the most important things you can do because your main job inside of a law firm is to help the law firm make money.
And the better, better you are at that, or the better you will do. What I'm going to do today is I will talk to give this webinar, the webinar's not too long. And then after the webinar, I'll open it up for questions. And and then we'll go from there. So the first thing is a lot of times, especially young attorneys don't understand how loft the law firm, they work in mixed money and whatever firm you work in.
But understanding how that law firm is going to make money off you is going to have [00:01:00] a major impact on, in terms of what happens in your career. And understanding kind of these economics, as I said earlier is very important. And and a lot of times people don't understand these economics.
And law firms don't always tell their associates how the business works. And and many times there's often a lot of partners inside of law firms that Often don't understand how law firms make money and it's not something that's also not even taught in law school. You need to have a good understanding of this if you're going to do well inside of law firms.
And and that's what I'm going to talk about today. There's also different business models that law firms follow. And there's an economic model that the large midsize firms follow and they follow it often at the law clerk associate and partner level.
And and what I'm doing today is I'm not really going to be talking about legal secretaries and so forth. I'm going to talk only about law firms and a lot of this is, are critique too. So it's not a necessarily a positive thing that I'm talking about today. But you really need to understand the, the, how.
So the first thing is the parts of the billable hour to law firm, [00:02:00] economics, which I think most people understand and and large and mid-sized firms they're really run to be profit centers and and make in law firms make money based on their range with the clients. And and there's lots of different billing arrangements that are made with clients.
Those include fixed fee billing arrangements contingency. And then of course the billable hour and large to mid-size firms all prefer the bill, but our approach it's much more profitable for them. And they actually learned that it didn't used to be that way. Law firms used to bill based on kind of the value of the work that they were doing.
So what that meant is that they would, sometimes they would quote a fee upfront. And that would be what they would charge. And then other instances at the conclusion of the case the partner might even take a look at the size of the file that they in their associates worked on. And then tell the secretary something to the extent of the, the six, like about a couple thousand dollars, send them a bill for that.
And and this was a, there, there was a time, I decades ago when the filling was not done by the hour, and that was how law firms build people over the past several [00:03:00] decades. There's been a a major transition to liars facing the value of their time differently.
And and because of that everything has changed not without talking a lot about it, there were studies done. And and what had happened was when they realized, so when liars started tracking all of their time then then they actually started making more money.
And then when they weren't tracking their time, they would always guide, give, say this may not be worth as much and so forth. And so the value of their time would go down. So the lots of studies done and everyone gradually concluded of that the billable hour was the best way of doing things.
And I talked to attorneys on a a daily basis. And I don't think that I've ever encountered a single situation where I've talked to an attorney and they said that someone told them they were billing too much or billed too much in a single project.
I but I've often know, heard people not doing it as much. And and I believe that a lot of compensation and hiring and firing decisions decided most. It's really based more on more on ours [00:04:00] based and then necessarily many times the value provided for the client.
And that's the way that serves the attorneys. And certainly it can serve our clients as well, but that, that's just how it works. And I'm not saying law firms are necessarily guilty of patting their bills and At times your associates work at various matters, but at the same time I, I do believe that the business model of law firms pushes partners and associates to work maybe a little bit more time on things.
And they need to, especially in firms that are a little bit slower and and but with a client being charged by the hour, they are definitely getting a bill that talks about the time that worked. And but it may not necessarily reflect the time necessary to work on a given matter.
And it's important to understand the bill Bauer and how it impacts the firm's profitability as well as their evaluation of you. And and it's going to be much different at each point in your career. So there's a story I always like to talk about when I'm talking about the billable hour and how I realized how important it was.
And it [00:05:00] happened when I was the summer. And there was another girl that was a summer associate at the same firm that I was. And and there were a bunch of us in the same class. And and after the first reviews every one of us, except for her got a bad review. And and and she got a great review after the first half of summer.
And and so I, because I, she went to my law school and I knew who she was and stuff. I talked to her and I was like what did she do? And she said one of my mentors, it was a girl that that she, that she knew from college was also a summer. Now an associate there told me that, the best way to get an offer is just to bill as many hours as you possibly can.
And so she built, I don't know, 60, 70 hours a week, and that enabled her to. Get very good reviews and it didn't necessarily have any to do with the quality of the work. I felt like I was doing very good work and she was able to get a good review. So I did the next thing that, I did that exact same thing the second half of the summer, and ended up with great reviews and and that was really the lesson.
So that was my first entree into law firms. And then and then after [00:06:00] my, I remember when I the first law firm I was at, when I quit, I was complained that this person that I was friends with, they didn't make partner. And they said that person only worked, 2,800 hours.
And the person who made partner work 3,200, and I was like, wow, that's this is how important billing is. No one was talking about the quality, no one was talking about people, winning cases and stuff. It was just all about how many hours you built. And and that lesson right there, I should tell you a lot.
Those were two major lessons that I learned very early on. With how important billing hours is. So most of American law firms are set up in the same way. First the law firm has locked clerks who are lost three young attorneys weighted bar results.
And then and, there would be a summer associates or there may be law students sometimes of the local. And then the law firms has junior mid-level and senior associates. And then the law firms will have people at the council level and then partners. And and then of course there's different levels of partners.
There may be income partners and equity partners. And in each stage of seniority within a law firm your value will change. [00:07:00] And the economic expectations, a law firm hazard view will also change. The law clerk this is, most law firms once they get to be a certain size we'll have law clerks.
They're they're often employed during the school year. Other people that are learning to be attorneys and but they're not attorneys yet. And they're typically make anything from nothing to in the largest firms, it's much more than 2000 a week, obviously.
And can do very well financially. And and from the law firm perspective really what they're doing is they're they're meeting people that are going to be, could be potential liars. They're they're trying them before they buy them. They're they're getting them basically set up to get offer.
So they'll come to work there and be profitable. And then they're also making a little money hopefully from them and the work while the, while they're doing work for the firm in the summer and so forth. And law firms will use these clerks for tasks, which aren't obviously that profitable, but are usually helpful.
They may be used for research different needs done in an important matter. Or they may be used just mundane tasks with the firm would prefer to associates not work on it. And it doesn't require as much [00:08:00] scale, but still need someone to be smart. That's looking at them and but one of the reasons I think the main reason that law firms hire a summer associates is they they do need entry-level people that can build a lot of hours and they really want to see if the person is up to par to play the economic case, the law firm and not everyone is.
And so they want to see w what's going on and and and a couple of years ago, I just remember seeing a telephone call from an associate inside a large Manhattan firm should the first review. The firm was unusually harsh and made several trivial comments about, drive and focus and and.
And right. I realized pretty quickly what was wrong. And then I asked about the hours, which I thought, and she said 35 hours a week. And and again, just like the last night I told you earlier I asked a summer associate how the assignments were set up, handed out.
And I basically said, get all the works that you can that are not billable to from clients. And and then and, meaning that you're just doing work for partners that are looking for research and things. And then and then, just work incredible numbers of hours and bill at least 70 hours a week.
For the next five [00:09:00] weeks here, summer weekends, and whenever you get a chance and and that's really all you need to do. And and then at the end of the summer based on following the advice that I'd also learned when I was younger out of 18 summer associates in her class, she was one of five to get an offer.
And they'll offer him, praised her. So this is something that kind of happens. Certainly I'm sure there's, some are associates that work, lots of hours don't get offers, but and almost every case where I've counseled attorneys that are in serious troubles with the law firm the large reason that the people are in trouble has to do with how hard they're perceived is working the number of hours or billing.
And then by extension the net amount of money. The law firms making off them and and law firms take the number of hours you work very seriously. I I can, remember lots of placements that make it's very rare that people get fired.
But when people do get fired a lot of times the law firm will complain that they've left early and so forth. They're there now, and they're not working hard. And and often don't need to hear much more. People inside of law firms, often find a position and position where they don't have enough work and partners are assigning work to them.
And in [00:10:00] question closely, I I find that those people that aren't getting a lot of work are often perceived as when they do get work, not working hard enough in the assignments they received. That's very important and partners are compensated based on the amount of work the associates they assign work to do.
And and, many partners would want to assign work to people that are going to work hard and build a lot of hours rather than associates who are going to figure out ways to. Get the work done quickly and just as effectively, how, which doesn't really work for them.
And it's not a conspiracy, it's just how it is. I Law firms, again, our businesses and and they want to they really want to if it's warranted, they want to build a lot of hours to things. And bonuses of course, are given to the people typically that build the most hours.
And in a more subtle ways people are risen up and pushed down by not getting assigned work if they don't build a lot of hours now I want to be clear there's the quality of your work certainly is something that matters. And I'm not saying that it doesn't matter.
It's hugely important. And partners are not going to assign work to people that do bad work and [00:11:00] who don't pay a lot of attention to the quality of the work that's being done. But but if a partner has a client and they know the client's willing to pay large bills and they know if they give you the work you're going to build a lot of hours and do good work and really help them make a lot of money.
You're going to be very high up on their list. So think about it. If you were in a large law firm and you had your choice of giving it to someone that excellent work and would work very hard to be very thorough. And and you knew that the client would just as soon pay for a hundred thousand dollars this year time then they would pay for, $50,000 of someone else's time.
And the attorney felt that they assigned you the work. They were going to get a good result, maybe better than the personnel and this $50,000 worth. And maybe there's a lot of stake. They're probably going to give it to the person that works hard and a bit more hours. Just put yourself in the shoes of a.
I have a partner that's trying to increase their bill, their billable, how much they collect and how much work's done on their clients matter. Your value comes inside of law firms. Through the the [00:12:00] amount of hours you bill it certainly comes through your scale, but it's a lot of it has to do with the hours you've built.
The junior associate is often told they're unprofitable and the law firm does make money off them. That's a very common thing that all law firms tell junior associates it's often true. But junior associates are often very profitable, but they're not as profitable as mid-level associates.
They're really in many respects, one of the more profitable components of law firm economic engine. The reason is that the clients don't have a good understanding of the law firm economic engine. They, most clients look very, look at the bills and and so this is a, example the billing rate.
So a law clerk might be 140 hours an hour. And this is, obviously pretty low the standards. The first year might be 170 second year, 215, third year, 2 65, 43, 10, and then partner. This is an example of how billing rates can work at firms. And in, in most things a partner, if given the work to do can do it much faster than a junior associate ever cut.
But at the same time a junior associate could work in the same matter, it could often work would take, one to two days [00:13:00] to work on a matter that a partner could figure on 15 to 20 minutes. I recommend once when I was in a when I was a associate in a New York firm, I was working on a a tax matter and it was very complex and I couldn't really come up with the answer.
And I talked to a couple other associates and they couldn't, but I worked for a couple of days trying to figure it out. And eventually this mid-level associate and I both went to. A partner and he was able to figure it out, 10 minutes. And sometimes very smart people can figure issues out much faster, or they understand that they don't need to look for answers and so forth.
If you you've seen a lot of associates working very hard. They'll work a lot of hours and stuff, but a lot of times even though the billing rates suck a lot cheaper to clients because they're lower they actually are very profitable because they, all the times that they work on matters adds up and associates, junior associates often need a lot of training to become effective at their work.
And but they're a very good source of profit for firms. And so just thinking about how the billing rates look, work for the firm. If you need to think about it from the status of the law firm and the client and you're generally [00:14:00] working with a partner, who's gonna figure out the most effective way to get things done.
If you're a client. And and usually the partner will assign a lot of research and things that they may already understand. But they'll say something like, before we figure out, what we're going to do, we need to get answers to the following questions. And I could work on these questions cause my billing rate's high, but I'd asked, a good junior associate to work their billing rates, half of what mine is.
And then the junior associate proceeds to do a lot of research about things and spend a lot of hours and. And as every incentive go hard so they can make bonuses and so forth. And it's not always the most efficient way of getting things done and I'm not criticizing the legal model.
It's all law firms do this. It's not a necessarily an ethical, the partner will get answers to questions that they may not completely understand the perspective. And and then the partner can work on more interesting things. And but then at the same time, the associate will go and do a lot of research and and the bill will increase and that's just how it works.
[00:15:00] And it's it's a system that's developed over a long period of time and and that's what happens. Junior associates or research matters will do things. They may not even have the most highly developed research skills. And and they may believe that the partner they will often believe that the memo they produce needs to be a hundred percent flawless.
And so they'll. Often, I used to spend two to three times longer proofing and tightening the language and so forth before even showed the memo to the partner. But you're still billing for this time. And then and then the partner will often think of new issues. They want the associate to explore based on that memo and more memos will be written in the legal bills will continue to increase.
And that's just kinda how the model works. And it increases the bill and make sure that the client is protected because they're they're covering the flank by researching all sorts of issues and so forth. But the. The partner will always, applaud the research and say that there were a lot of issues that they need to be aware of, but they wanted to make sure they did a good job.
Every time I received legal bills all the time. And and most of the time the law firm will say something along the [00:16:00] lines of, this is more than we anticipated, but, we've, we found this and this issue and this is what they all do. And it's just how the game works. And there's nothing, again, there's nothing wrong with that.
It's how it works. And oftentimes to make the client feel good, the client partners will reduce discount the bills of the junior associates to be nice. And but at the same time, a lot of the research may have been inefficient and then when it was done and not necessarily always needed, it's also a good way to teach junior associates about the law.
So there are learning the ins and outs of the type of work that they do. And And it's just part of the game. And it's a game that when you're a junior associate, if you're given assignments, you think are dumb and ridiculous. You're, there's a purpose to them.
Good partners in any practice area will make sure that they have everything as well-researched as possible. So they're not making mistakes on the client's behalf and that's what clients are paying for. It's not, your role to judge whether or not that's necessary, but it's just part of the game.
And but the the junior such a trough and given a ton of work to do and and they make the [00:17:00] partner look like the good person, because they're Given to some of the lower billing rate. But but in the end the law firm will make a lot more money than if the partner and the research was just funny.
And and but at the same time you're getting trained. When you're doing the research, you're learning about different areas of law, which is something that will carry over into your legal career and help you. And the, certainly the client is being protected and and that sort of thing.
And there's a lot of firms out there that Don't necessarily follow this model. Like they have so much work and so much time on their hands that are mean so little time in their hands that they couldn't possibly research every point like this, which would include, insurance defense firms many times and but not all of them.
And and a lot of consumer facing firms, but the closer you get to larger clients and big companies and so forth, the more this type of research is likely to be done and kind of part of the package as funny as it sounds and then you have the mid-level associate. So after 2, 3, 4 years of experience, or even five years in experience and associate becomes a mid-level associate.
And they they the many people [00:18:00] leave by the time they become mid-level associates, they've they've written enough memos and done enough research and I've done enough of the kind of entry then discovery and all the kind of entry level type stuff that attorneys do.
And they're ready to move on. Any times they leave because they're under beds or mid-level associates because they're they've entered a world where they're actually expected to do work like competent lawyers. And that means they're talking to clients more they're they're going into court, a thorough litigator they're doing deals closing things and doing a lot of things that they wouldn't have done as a junior associate.
And and they're almost and they're also billing a lot because they're trying to prove themselves to clients and other people that they're and to the firm and they're also very profitable. As a while junior associate may, work a hundred hours on a memo that the law firm doesn't want to bill all their time for most mid-level associates do not have a lot of time written off and they can they can do most things.
They can be given assignments by partners and they can also delegate a lot of this work and there's just a lot of things that they can do. And [00:19:00] and they go to court and they can basically do anything that the law firm needs done. In most cases once a junior associate becomes a mid-level associate and has some experience as a mid-level associate, the law firm can feel pretty confident that the mid-level associate has a good idea of what they're doing.
And and and the mid-level associates starts being very good at gauging. The amount of work a partner will allow them to do on, are expecting to do on both matters and would be good, or even managing junior associates. And and but they can get most things done and they don't ask a lot of questions.
The fact that they're not answering, asking a lot of questions makes them fairly easy to manage as well. So they're just you can give them work and and they get things done. The other thing is that their billing rates are not that high. So they're they're going to be lower than than a senior associate or a partner.
So they can. Also the effect of doing, the appearance of doing work for a low cost. That's, more complicated than the type of work given to junior associates. And and then most law firms do believe, [00:20:00] and it's true that the mid-level associates are often the most profitable because they can do the work they're trained.
They haven't left as junior associates or proven commodities as a mid-level associate. You're also not a threat to partners to, so the law for knows, you have several years left in you before they have to worry about making you a partner. And they're often good candidates and like for legal recruiters because they offer a benefit to junior associates on offer and also senior associates.
They're trained and they can be assigned work. They're not threatening to partners. So they, their billing rates are not similar to partners. If your billing rate is, close to what a partner says, a partner makes more money when they do work on their own than if they give it to someone else.
The you're not threatening to partners. You can also we typically not threatening to senior associates who are trying to make partner and and you won't upset necessarily the balance and appearance of upper mobility inside the law firms. And again, here's the billing rates you can talk about.
And you can see if there's not a huge difference between a mid-level associate and, in the first year, or, but when you start getting into the partner level and the senior council on sip [00:21:00] seventh year and so forth things kind of start rising. So the third through fifth year it's not threatening.
The billing rates are lower and the person who's still having to do good work and they're a proven commodity then compared to someone that gets more senior and the mid-level associate is also can be very effective and all of those effective as a partner and so here's an example.
A law firm brings in a hundred thousand dollars matter. It could be divided 15% of the matter generated and the the 30% of the work, sorry that the the partners, individual billing that they work on themselves are able to receive themselves.
So they get $30,000 and then 55% we'll go to from overhead and then 15% will be to the people that do the work and kind of that sort of thing. Every firm's economic has different. They all have, depending on how you slice it, some similarity to that. And partners typically are compensated most highly for the work that they they did themselves and then they're compensated less for the work that they have others do.
And most partners have the incentive to do work themselves and build a higher rate than to have others work on stuff. Every type of assignment a partner gets is [00:22:00] different. Some may require to do all the work themselves, but and most law firms and most clients, they will, what the partner will do is they will give others within the firm work to show basically to have lower billing rates or to have other people's sexualities work on things.
And then if the partners price their services to high, obviously client clients would go elsewhere. And then, and that sort of thing. So the goal partner wants to find a balance and mid-level associates good balance because the mid-level associate can basically do the work at a good cost for the client.
They can do it competently. They're trained so they can work pretty quickly. They're not going to ask for too much their billing rates are lower enough and they're not going to ask for too much guidance. And and so firms will often use them a lot. And and and not as much of the work needs to be written off.
And then the next one is a senior associate. They're, they can be very dangerous to law firms hardly, especially at larger law firms are essentially very averse to hiring them. They will. And I placed senior associates all the time, but they're often very versed. These senior associates [00:23:00] of course know exactly what they're doing.
Many times they're much smarter even than the partners that they're working for and they have the knowledge. But if they don't have any business then they're not going to be is in demand at all because there are problems because their billing rate needs to be high because of their level, their number of their, the level of experience.
So it's close to what a partner would be billing at. And and if the partners are required to build a certain number of hours, then. They're going to be unlikely the partners to give the senior associates work because it's going to cut into their profitability. And if your client, for example and you have a very complex matter, you would rather have the partner, you would rather call them for advice then the senior associate many times, because your relationships with the partner, they're the ones that the partner I'm the senior associate you've might not be as interested in talking to.
But the senior side of you is going to have a billing rate. That's very similar and it's going to cost you as much. You need to be careful. So unless the firm has great deal of work coming from clients that are ready to pay large hourly rates, the partners would often rather do the work themselves and give it to senior associates.
And also in the law firm [00:24:00] environment senior associates have often have a very difficult time getting work. So they they they need to in order to survive, I they need to be able to get work and it's much harder for senior associates.
To get work because their billing rates are higher. It creates a lot moderate pressure for partners to generate, work that they don't want to do themselves, but better at a higher billing rate. Partners need to have a fairly significant clients in order to give senior associates work.
And and the ones that are the best getting work will often have the highest billable hours and survive. They can be kept around forever as counsel and senior associates, but it's because of their high billing rates that law firms began, started to pressure senior associates to find their own work.
And and senior associates will be under pressure to either bill a lot of hours, which means for doing good work for the partners they're working for, or there'll be under a lot of pressure to generate clients. And so it's tough. And even in the most major firms, there are senior associates.
I've seen them, 20 year associates in major firms, but it's very rare. And typically what happens [00:25:00] is the senior associate can't generate work. They're going to be asked to leave at some point, or they're just not going to be given things to do at which point. They will start looking for jobs.
And the next one is the partner and council level attorneys partners a lot of them will say they wish they were associates again, but the most successful partners typically do enjoy their work and are not interested in being associates. So at the partner level they're expected to do good legal work and continue to generate work, whether it's from themselves, for outside clients.
They're also expected to give work to junior associates, mid-level associates and even at the largest firm, senior associates. And and they're basically economic machines that, hopefully are generating business and and giving other people work and and that's their job and to generate work for themselves and to keep the whole.
Model going. So what does this all mean for you? What it means is that every step of your career your your value to your law firm is going to be based on your ability to do work. And and this is much harder. A lot of times it may appear as a law [00:26:00] clerk or summer associate, you're going to be evaluated based on your work and how much people like you, but you're also going to be evaluated based on your ability to, and how much it looks like you're going to work a lot of hours and really turn the machine and then associate, it's funny, like you can be given a research assignment and as a junior associate or summer clerk, and you can come back an hour later and say, this is the answer, that's okay.
But. If it's portray, if it's if it's portrayed as something that they want a lot of research done, then then you sure as hell better work hard. I remember I was thinking I had an assignment one time on. A summer associate in New York.
And I was told to go, I don't know, do research of 50 different states, securities laws, and some other aspects of it. And and very quickly I was able to find some book to list it, all the information. And when I brought it to the partner, he said yeah, but I wanted to also know this and this like information that wasn't there, that he hadn't asked for originally.
So he was looking for a lot of research that that took a lot of time. And so I ended up spending three weeks on a project that. [00:27:00] Answered the question for, a few hours for the research. So that's the thing. And if you're a law clerk or summer associate many times they really want you to do that work and and it's important to them.
And and and if you if you don't do the work and you don't show that you're going to be willing to work with a lot of enthusiasm and so forth, then. Then you're going to be in trouble. And junior associates, your responsibility really is to to work as hard as you can. And the work you get men in most large law firms working lots of hours is often romanticized and and because the, and it's considered a very cool thing.
And the reason is because that's how the law firm makes money. And so they need to romanticize and it needs to be considered part of a ritual and so forth. And in order to succeed, you need to play that game. Mid-level associates you're expected to be very competent. You're expected to do a lot, to take a lot of responsibility.
And basically to do, whatever's asked to you and to go, as far as you're asked to with each project you're given or, matter. And and this is really the meat and, where law firms make their most money. They make a lot of money off their admin, Boba [00:28:00] associates. And so it's very important that you.
Do the work and that you're given. And and it helps keep the bills down and it also helps get the work done. And and that's kinda how that works. And then senior associates you're really, your job is to find a low hanging fruit of work that clients would be willing to pay for at your billing level and to do as much of that work as you can, to survive.
And your ability to get that work will ultimately determine how successful you are. Whether wherever, regardless of how the work comes and and then the same thing partners need to have a lot of. So the economic model that you need to realize if every firm is really to get as much work as possible.
So you want to build as many hours as possible. You want to do good work for the people you do work for in a way that they want. So they'll give you more work. So you would have more billable hours. You want to be the favorite person. That's getting work from different people and you want to have, you want to be given work.
I The worst thing that can happen in a law [00:29:00] firm is for them to stop giving you work, or for people not wanting to work with you and so forth. And and you can't reasonably expect it to move up if you're not doing a lot of work. And and so that's really how it works. The more hours you build as an associate, presumably the more hours you're going to bill and your work, you're going to get as partner.
And that's what they're hoping for. And that's how the model. And and that's really in terms of how it works, the most prestigious firms and. And the ones that have the most billable hours, which allow them to collect the most money for their work. Built in the highest billing rates typically are the ones that most people want to work in.
And it's not always the best choice. Th the biggest thing, for any lawyer is to be able to generate work. So I talked about earlier, the whole idea of the partner giving kind of these endless memo assignments to junior associates and stuff. And that's an example of generating work.
And in any profession you need to understand how to create work. You need to be able to create work. You need to be able to figure out the best way to make work. You need to find things to be done. And [00:30:00] that's really the only way to survive and large law firms with massive clients often have a limited amount of work and that women, the work that they're even the biggest clients.
And and so they're giving certain amounts of work to partners and they'll have just a limited amount of work for people at the very senior level, with the highest billing rates. And then as you go down the ladder to mid-level and junior associates then they're more comfortable the billing we're out billing rates and so forth.
Don't look as punitive and to succeed in the second NAMIC model. You're going to need to work hard the junior associate level and show that, you can play the game and then you need to become very competent. Playing the game and then as a mid level the same thing you want to build as many hours, and then when you're a senior associate, by that time, hopefully you have very good relationships with partners that have the work and then the clients that are giving work to the partners.
And and that should help you as well. And the point is as you get more senior, it becomes very difficult to continue the work coming and it becomes very difficult to to guarantee your success and to know that good things could happen to you as you [00:31:00] get more senior.
And and that's really that you can be made partner and so forth. So you need the ability to provide so much value to the partners that you're working for as a senior associates, that they're almost, they're more willing to give you the work than do it themselves, even though it's possibly costing them money that they would make, if they did the work themselves and they need to trust you and so forth.
So what happens is people are seeing. If they're not getting clients on their own or partners, aren't giving them as much work and they're not secure. Then they'll start going in house in the smaller law firms. And and the allure of in house really is to for, at a more fundamental level of survival is to start to, to get away from the law firm competition to get work inside of a law firm.
What happens inside of law firms as people get more senior many times is they just, the, they stopped getting put on matters or they stopped getting as much responsibility, or they're told not to work on certain things. Even when they were very busy as, junior associates and mid-level associates.
Understanding those economics and how it gets more competitive each level, this is very important. [00:32:00] And the smaller law firm often will attract the senior associate or mid-level associate that's not maybe making it, but the, because they have lower billing rates.
And so if you go to a place with lower billing rates clients are if they're paying $500 an hour for you, as opposed to a thousand or 1500 they're more likely to be giving you work. Then they would at the large law firms. And so w they're the gravy train can continue flowing in the work, continue find a smaller firm.
And that's one of the benefits for they, you people go where the work is. And so you can move from, a major city to a smaller city. And and the same kind of clients will our other clients will use you with your lower billing rates and be and you look more attractive to them.
And. And and then you can also potentially bring in clients. It's very difficult in major law firms, many times for attorneys as they get more senior to bring in clients because the clients that they bring in unless they know very significant clients are unlikely to be able to pay their billing rates.
So that's an issue. And if a law firm does work for large clients [00:33:00] then that those are the only ones that will, if the billing rates for that high, at a large law firm, the largest clients are the only ones that can really afford to pay it. And they're only paying it because of the presumed expertise and so forth.
And this whole economic model just the biggest thing that you need to understand is as an attorney, whether you're. A junior associate, a senior associate or a partner. You need to keep the work coming in. I don't care how you do it, and you can do it by doing really good work as a junior associate.
You can do it as a partner by having a niche and marketing yourself, or as a senior associate by doing a very good work, but you need to have the work continually coming in. And if you don't have the work continually coming in you're going to be out of business. And it's like any business, a business, stops everything stops when the business stops generating business.
And and you can't. Bringing business and a law firm. And you're expected as an associate to get repeat business from the partner that are signed you work. And then when you become a partner, you're [00:34:00] expected to get business from clients and then repeat business from those clients.
And you need to do it, and it's all about bringing in work and, bringing in the work and doing it. But but having a constant inflow and work coming in. So I'm going to take a quick break, I just for a few minutes. And then when I come back I will answer questions answer pretty much any question you guys answer.
I'll try to answer today. I do have to stop a little bit early. I usually spend a lot more time on questions, but I will answer all their questions. Everyone has I'm just going to take a quick break, come back. And Matt, thank you.
Question. How much do lawyers at top firms make? Okay. That's a good question. It depends on the firm but at the largest firms, you can, make quite a bit of money. It depends on what you're doing w in your kind of level of, the amount of business you have and the type of firm you're at, but at the partner level, at the largest firms, most of them will make over definitely do very well.
You can make well into the seven figures the largest firms as long as you're there. Let's see. Okay. [00:35:00] How do smaller firms attract the clients with a lower billing rates? So what happens? If a law firm has lower billing rates, but good attorneys then that's very attractive to clients.
If, if you have a lot of times, people will go get experience at very large firms. I have the attorney right now, that's representing me in a matter of. I think was, before opening her own firm was at I dunno, late summer or something, where she was billing out at $900 an hour.
And now she's on her own firm and she's billing out under 500 hours. So that's very attractive and her work is very good. It's no different than it would be that she was at the larger firm, but she doesn't of course have the in the, all the people helping her and so forth. But but that can help.
So smaller firms will attract clients based on the quality of the attorneys and most general counsel and other people can tell the type of quality that the attorney that the law firm has and the type of quality of the attorneys in the law firm. Often hired them. One of the things that happens, it's interesting and New York city that the billing rates are very high for a lot of reasons.
They're high because there's just a ton of reasons that they're high, [00:36:00] but especially in the larger law firms, it's a lot of very good law firms in the suburbs of New York and also upstate New York that have a quality of attorneys working there that is very good. And the billing rates are, often one half to one third of what they would be in the larger firms.
And and, arguably the work isn't going to be that much different from those firms. And that's very attractive to law firms. It's the same thing with law firms in outside of Chicago. And then if you go into the suburbs or, more rural areas of Illinois, whether it's very good attorneys.
And and it's same thing in Los Angeles, it used to be like Riverside and other places compared to LA. It depends a lot of times it's geographic and in the smaller firms too, outside of the geography or smaller firms within the geography can often attract very good people and will because of the the type of the type of work that they do.
For that can help them. Okay. Let's see. How can an attorney does your interesting questions? How can an attorney improve their billable hours on a second? Sorry. The best way to improve your billable [00:37:00] hours in terms of the number of attorneys, it really depends on the level that you're at.
But the most important thing is really to get an understanding from the people that are assigning you, the work of kind of what they're looking for. So people that are assigning your different types of work are going to be often looking for different things. And so what that means. A someone that's maybe like a senior has a large client may be looking for you to work a lot of hours and then maybe looking for an exceptional insight into a matter or someone who's a working for a smaller client may want you to just do things very quickly.
And so different partners inside of firms will have different requirements. And then as you get more senior the way to improve your billable hours is to bring in clients that will trust your advice. And also give you a lot of work. So the more work those clients give you often the better off you're going to be.
You typically want to do the best job you can for the people that you work for. And you want to understand what people need when you're. A junior associate or a mid-level associate, or even a senior associate. And one of the things you're doing is that the people that you're taking, getting work from, which [00:38:00] are partners and counsel and other senior people that are more senior with you than the firm your objective is to really make them like you and to get repeat business and to do the type of work that they want.
Making them feel good about the, the quality of the work you're giving them the your responsiveness be nice to them, not asking too many unnecessary questions making them feel not important. Making them look good in the eyes of their clients, all those things can help you improve your billable hours.
And it should really be top of mind in terms of whatever you're doing. You want to make sure that the people that you're getting that are you're asking for work for and giving work to are that, are like you and they want it, they want to ask you to do work again. People keep coming back and asking you for work after they've giving you after you've done work and that's a good thing, but repeat businesses the most important and then also asking for work.
And then the other thing I would say that that, that is very important is creating work. So what creating work means is, when you, if you do an assignment you come up with, come up with alternate assignment, come up with additional work you could do.
Just say, [00:39:00] it'd be helpful if we didn't, if we did this and this and this, and this would be helpful, and those sorts of things. So just coming up with additional work telling clients other things you need. So an example would be like a corporate.
Is asked to does something similar. It's when a company starts, for example, a company may do, articles of incorporation. So you do the articles of incorporation, then you say you should also file register your business with the city you're in. And then you should also come up with employee contracts and maybe there's some IP work.
So just figuring out additional things that the client needs is very smart. And the better off you are at that, the better you're going to do as an attorney. So you need to have the ability to create work come up with additional things people need and all that sort of thing. And that, that can be.
Very helpful. And and that's one of the things that I always recommend is your ability to come up with additional work and then to ask for work. And then the other thing is just relationships. So a lot of times inside of law firms work as farm based on relationships.
And if you have good relationships with different people that can help you. And then this is the same [00:40:00] thing. The partners do, partners get worked from potential clients by former relationships as well. People want to deal with and give work to people where they feel like they have a relationship.
And if they feel like they don't have a relationship, then they're not going to be as interested in giving you work.
What are the...
Okay almost everything you do for our client can be billed. If you are reading an article about something that's going to help your client, you're going to incorporate into work. Th that, that, that could be built if you're. Thinking about the client you, and you're thinking about a strategy that could be built.
So think about it, that the client is paying you for your mind and and the results. Of that. So if you're strategizing, if you're having a meeting, if you're doing anything related to the client, many times traveling can be built. All sorts of things, you have to understand what's billable and what the guidelines are for the firm, but lots of stuff is billable.
And so you need to understand that those obvious going to be lots of different things. That you can build to every client and you need to be aware [00:41:00] of what those are. But most of the, just keeping in mind that the client's really using you for your mind.
Phone calls anything that anything that takes up your mind space emails and, pretty much anything. In different firms have different things. Now, some firms will tell you, you can bill while you're thinking about the client or shower, if you're just thinking about a strategy and that's could be fine, but but you also have to you, you have to think about what's really going to pat, what's acceptable to the, to a given firm that you're working at and that's really and to the client.
So you don't want to overbuild a client and so maybe thinking about the client is not always a good excuse to, to build them, but you have to think about things like that. And how many students, how many hours can they associate use of working in a given task? I It depends on the tasks that you're given, so it would depend on what the matter is and and what the expectations are.
And and then typically you may, sometimes when you're getting an assignment, you will be asked, when do you want this back or pardon last year, something like that, or you'll ask them. And if you get that and [00:42:00] oftentimes if they don't want you to work a lot of time on, they'll say they'll say something like don't spend too much time on this.
You're trying to give you an answer quickly. Don't spend a lot of time if they do want a lot of time spent on it, then they'll say something like, I really want you to be thorough or when they look at it, they'll ask you additional questions and they'll tell you to come back and and rework the memo and so forth.
So you should be out. You can always get a an understanding of how much time the law firm, much to work on thinking many times by what they say. And it's also often determined by the size of the client and how important the matter is to, to what you're working at.
Okay. This is a good question. I thought I answered this in my what I was talking about. Let me just see here. It says, why is a why is a junior associate excellent source of problem for law firms? The junior associates, an excellent source of profit for law firms because they will work often very hard.
They will bill lots of hours. And and then the other thing is they will their salary is often lower than No more senior people, so the salary is lower. But also the th the bill, the [00:43:00] hourly rate is lower. So because the hourly rate is lower they can give them the law firm can give them more work.
So the example is a law firm can give more. So the example would be, if somebody works, 20 hours at let's say $400 an hour, or let's just say 320 hours or $300 an hour that's only $6,000. But if somebody works 20 hours at $1,100, an hour
of a hundred dollars an hour that's 22,000 22,000 is a big difference between and so it's much easier to get work at someone, and then I've been this differential, maybe I'm a little extreme, but you can see the economics. And if you have if five people doing this equals, 30,000 and then five people doing this.
Equals 110,000, so it's just, it's a big difference in money. And so people are just thinking a lot differently when they see builds from more senior people versus junior people. You can give the [00:44:00] junior associate a lot more work to do, and people are not going to bop.
And, but the big thing is the client that the partners in the firm is more likely to get the bill. They keep the bills low and bills a reasonable the firm is more likely to get repeat business as well. Junior associate can be very profitable. It's just, the work is not it's is complex.
It's it's, there's just a lot of benefits and keeps the bills down. But at the same time the person that, the associate can be very profitable at the same time. So that's very helpful. Hang on a second here. This is interesting. How do you really move up the law firms? Food chain.
Okay. There's really a lot to this question. This is a pretty involved question. But what I would say is, when you're asking, how do you really move up? The biggest thing I think I said at the beginning of the webinar is you need to generate revenue for the farm.
And that can come and that comes through billing more money and [00:45:00] more money collected up to a hundred billions than other attorneys. And that's really that rule applies to all attorneys in the firm. So you know, it doesn't, certain people could have really good personalities.
Like you get along with people there. I There's all sorts of things that make attorneys good inside of law firms and in demand so forth. But th the biggest thing, and the most important thing is the ability to generate revenue. And so you need to be able to get work at all levels of recruits.
So that means as a junior associate, as a partner or whatever. So from, from law clerk to partner and you'd be able to get work. Lock clerks associates and so forth get work from.
Partners and others from partners can work from clients. So some people make that leap others don't, or just get portfolio
clients or other partners. So that's really it. So you just need to be able to constantly get work from different people age, stage of your career. [00:46:00] And the more work you're able to. The better off you're going to be, and if you're not able to get work, then then that's going to obviously create lots of problems for you.
So in order to move up the food chain, you need to have an abundance of work. Even if the firm doesn't necessarily like you and you don't have to be everyone's best friend they're still going to advance you. If you're billing more hours than getting more work than other people, they don't really care.
If you have two associates, you could have two associates. One is friends with everyone. One I'm friends with everyone, and, bills, 1800 hours. And other one is no friends.
Sorry, hunter. Yeah, this to say 3000 or 2,900, just to make it more, a more reasonable, the one, even, the one that no friends is still going to be advanced more likely, compared to the one that builds 1800, they're just more likable. They're more, they have our business, there's just a lot more benefits to them.
So that's just an important component to understand. Okay. Let's see. Did I just asked you that [00:47:00] question? How do law firms to regenerate how to wires to the generation. Okay. I'll answer this question. I'm assuming you mean partners how do they typically generate work? So there's, this actually applies to both partners and to associates.
So for partners sorry, I made a mistake there, but I'll just do this. So one of the things that the best way to generate work. Is to be seen. So if you go onto various websites you are in newspapers, you'll see advertisements for different products and services the products. And so those on products and services are basically trying to be seen.
And that's just kinda the game they're trying to be seen and they're trying to be visible and and so all marketing is being seen and that's one of the most important things. So the more familiar you are to partners, our partners, clients, and so forth.
So one of the things like I go to like [00:48:00] anytime an attorney let's just say, goes to an event and they sit next to a potential client the partner is usually never trying to sell their work. It's just like the person's an attorney. They're, maybe I need an attorney, I'm going to talk to them about my problem.
The partner with the client attorney will say, here's my card. And then the relationships form. The more you do that, the better off you are. Lawyers often somewhat soon they'll call them and try to talk to them about the lawsuit. There's all sorts of methods that lawyers employed to try to get business and to get clients.
But one of the most important ones they do is just being familiar. That's setting up meetings, talking to people doing all those sorts of things. And those are actually very helpful for bringing in business. So those are the main ways that people are doing and business.
And and it's the same thing in a law firm. If you're putting in a lot of FaceTime and people are seeing you there, they're more likely to give you work than if you're absent and doing some kind of remote thing. You need to be present and visible. And and I think that. That, that is one of the what more important things to understand in terms of your your careers?[00:49:00]
What are you, do you know, what are you doing to be visible inside of the law firm that you're in. And so that to me is one of the more important questions. Okay. I think those are, let me see if I have there's another question here, I guess it's and I'll just answer, this is how important to go hours law firm and the answer is they're extremely important.
It depends on the law firm, but in most law firms pretty much the most important thing because the hours that you bill translate into the success of a law firm. And so that's one of the most important things that translate into success. And that's the question that never sour. It's not related to that I can answer law firms, my.
I guess I'll answer that real quickly. I thought that was obvious from what I met in my presentation, but I'll answer this question real quickly. It's the question, how to law firms make money? Law firms make money by they, they sell labor. So they sell your labor and what that means is they they bill out your work for more [00:50:00] than they charge.
That's it, that's how they make money. And then they they have other expenses and then west leftovers, profit. Okay. Thank you. I appreciate everyone being on the webinar day. I'm sorry. I don't have time for more questions if you do have more questions I'll answer this one more because I think this is interesting question, but, and then I got it.
Let me just give me one second. So this question is what is the economic significance of bare seniority levels inside of a law firm? So the economic significance of different seniority levels inside of a law firm, it's pretty simple. The big thing about the economic significance is as people get more senior their billing rates increase
billing rates increase and as the billing rate increases, they're expected to be more efficient and clients become cost sensitive.
So that's the big thing with billing rates is that, as they various people become more senior, their clients become more sensitive to the billing rates and then the person is supposed to be basically you better [00:51:00] work. And then and then the closer they are to a billion or closer to partner rates the more the more the, the more the person wants either the more the client wants partners do the work or the less work the clients will want because of the veterans. And and then the more the less money other people besides a partner doing the work. Okay.
Thank you everyone for being here. If there's anything else, I think that's all I have, and I appreciate the questions. If you guys have any more girls have any more questions Certainly be available again next week to answer them. But in the interim thank you very much.