Your local Firestone dealer knows exactly how many tires must be sold each day to cover expenses and turn a profit. Based on the average customer’s shopping habits, your grocer knows how many customers must come through the front door each day to hit the store’s financial goals. Your gardener knows how many lawns must [...]
Your local Firestone dealer knows exactly how many tires must be sold each day to cover expenses and turn a profit. Based on the average customer’s shopping habits, your grocer knows how many customers must come through the front door each day to hit the store’s financial goals. Your gardener knows how many lawns must be mowed each day to keep the bank account in the black. Do you know how many hours you must bill each day to meet your goals?
The first step is to determine exactly what it costs you to run your practice every single day. A good starting point in figuring this out would be your projected annual budget (or, lacking that, your profit and loss statement from the previous year). Begin with 365 days in the year, then subtract out 104 days for weekends, 8-10 days for holidays, your expected vacation time and sick time (for you and your kids), days out for CLEs and professional conferences, any other time off you expect to take for volunteer work or any other reason, and then lop off about 25% of what’s left as administrative (i.e., nonrevenue-producing) time. Divide the remaining days into your total expenses for the year, plus your desired compensation, and you’ll have a pretty good idea of what you need to generate each day.
Next, figure your realization rate. This is the percentage of fees billed that you actually collect. Divide the fees collected by the fees billed and you’ve got it. This information can be found in your productivity report. If there are other timekeepers in the office, you need to figure each realization rate individually. The goal is to be at 90% or higher. [NOTE: For contingent practices, hopefully you are recording all of your time on your cases, even though you don’t bill hourly. Multiply the hours worked by your expected hourly return on that time to get the amount of fees “billed.”]
Now, multiply your realization rate times your regular hourly rate (or expected hourly return on time) to get your effective rate – or, what you actually earn per hour. As an example, if you bill at $200/hr, with a realization rate of 75%, you are actually earning only $150/hr. So, in figuring what you have to bill per day to cover the nut, billing five hours at $200/hr will only generate $750 – not the $1,000 you had in mind. Divide your effective rate into the amount you need to earn per day and you’ll know how many hours you need to bill each day to hit the goal.
The lower your effective and realization rates, the more hours you have to bill to make your goal. Since your realization rate is all about how much money you collect on your billings, reducing your receivables will give your realization rate a boost.
Okay, now that you know how many hours you must bill each day, it’s time to eat your vegetables. What? Your Mom was right – eat your veggies first because that’s where the nourishment is to keep you healthy and strong. Consider your client work to be your veggies. If you do your revenue-producing work first, you’ll be helping your practice to stay healthy and strong. Administrative tasks, marketing activities, and internet surfing should take a backseat to client work for your client’s sake, as well as your law firm’s. A financially healthy practice makes for a less-stressed and more focused attorney – that’s what your clients deserve. And, that’s what you deserve, too.