In An Equal Justice by Chad Zunker, brand new lawyer, David Adams, is hired by the powerhouse Austin law firm of Hunter & Kellerman. His starting salary is in the range of $200,000. He is to bill clients at the rate of $475 per hour. While his rate seems high for a starting lawyer his mentor, Marty Lyons, is billing over $1,000 per hour. How those rates translate into firm revenue and income distribution illustrates why young lawyers in big firms strive to become partners.
An associate in a large American firm can expect a billing target of 2,200 hours a year. If a young lawyer is working 49 weeks of the year the target works out to 45 hours a week. The challenge comes in reaching the target while dealing with the administrative details of practice, firm meetings, continuing professional development hours and other non-billable office time.
If an associate such as Adams meets the target (close to a euphemism for requirement) he will have billed $1,045,000. It is an impressive sum for a new lawyer.
With a salary of $200,000 it potentially means the firm has available for expenses related to Adams and distribution to other partners the sum of $845,000.
What few works of fiction delve into is the collection of billings. Small firms to big firms can have problems collecting all fees billed. Firms evaluate how much is received versus how much is billed. From a business perspective the target should be based on collectible hours. Few firms want to disclose the extent of their challenges in collecting accounts.
For a young lawyer under the direction of partners the issue of collectibles is more a question for more senior lawyers at the firm.
For discussion let us say $145,000 is non-collectible leaving $700,000. If the expenses related to Adams total approximately $200,000 there is about $500,000 available for distribution.
For the senior partner, Lyons, he is likely to bill the same number of hours and bring in substantially more money. If he bills $1,000 per hour for 2,200 hours he bills $2,200,000 for the firm. Considering his status and his focus on paying clients let’s estimate the firm receives $1,900,000 from his billing. We need to subtract expenses related to him which will be a little higher than Adams. I shall say $250,000 bringing his personal net collectibles to $1,650,000.
In the book he is paid by the firm $3,500,000. Since he brings in $1,650,000 there need to be about 3.5 associates to make up the $1,8500,000 he has not brought into the firm.
The post over-simplifies associates as senior associates are far more valuable than neophyte lawyers. The older associates will bill closer to the totals of partners as they strive to achieve partnership status.
For this post we will omit a discussion on big firms discounting rates for important clients so their billings are less than what you would expect from their published rates.
Big law is very demanding in hours and very lucrative.
Zunker, Chad - (2020) - An Equal Justice