Economics of a Law Practice

If you are about to engage the services of a lawyer for a larger engagement or considering how to open a law practice, then you need to consider the micro-economics of a law practice.Law offices can have considerable expenses or very few. Reasonable office space in an office suite for one lawyer will run about ($400-$1200) a month depending on market with the high being in places like New York and the low in fly over country say Memphis. Frequently office suites will include a basic phone answering. However, these services will lose a lot of potential clients, so a law practice will need to engage secretarial support which will run from $20,000 to $35,000 a year, again depending on geographic area. This means a basic law firm will have a nut of about $50,000 and the attorney will make nothing until they surpass that amount. This is why you can frequently get great deals by working with lawyers who home office on more complex matters which require a high degree of lawyer time and less paralegal or administrative functions. In a home office setup, a lawyer is substituting his time for those tasks.A major factor to also consider will be billable percentage, as a general rule a home office attorney can bill the equivalent of about eight hundred hours a year, an office suite about a thousand, and someone with a backup staff about 1500. The highest levels of 2000 billables a year or more are usually only achieved by corporate lawyers with extensive support systems and working for partners who delegate tasks and handle client contact and administrative tasking. Also, don’t forget time wasters such as no shows for appointments and the inevitable small breakdowns in keeping a business functioning.For larger cases, the largest expenses in most large offices will be uncollectible accounts. It’s not unheard of for lawyers who don’t emphasize solvent clients to have collections in the range of %40. Lawyers not only increase their hourly rate as they grow in reputation and experience, they will also be able to dramatically increase their required retainers or other proof of payment ability which will dramatically increase the percent of account they actually get paid. This is important for clients of newer lawyers, because one of the strongest tools they will having in negotiating a lower hourly rate would be to offer a greater starting retainer. Clients should also remember that when an attorney doesn’t seem very firm on collections that can mean they’ll get shortchanged in the attorneys attention as the attorney will need to have a lot more work to make up for the low collections.More complex non-transactional cases function as a service business. In service business, the greatest limiting function of an attorney is time. The time isn’t consistent though. Cases that require a high degree of uncertainty for booking can remove the possibility of taking other work for an entire day, even if a hearing might only last an hour, family law is notorious for this. This means the fields of social security, bankruptcy, and uncontested divorces will offer a greater reward to the lawyer than taking an equivalent hourly amount of contested work. This is why clients frequently find that family law offers the most frustrating of legal experiences, it attracts lawyers who find it hard to compete in other fields of law or who charge high rates.Areas, such as bankruptcy or social security, that lend themselves to predictable work function more as a factory. It’s relatively easy in those areas to add more capacity or to scale back to the basic nut. It also means that advertising prices becomes much more prevalent and more people know the market with as many as one in twenty people declaring bankruptcy in some areas in a given year. These area will be much harder to negotiate a price break in, but it will be relatively easy to price shop. If you have your heart set on a particular attorney, then it makes sense to ask for a price break in these areas if the attorney appears on the high end. It also means the best deals in this area will be in the larger operations. A lot of lawyers will maintain a hard and a soft price that is advertised and may reflexively give you a small break if asked.Overall, remembering how your case fits into this structure can really help someone dealing with the large expense of legal work.