Professional services
Law Firm Profit Calculator
Works firm profit, where partner compensation decides whether the figure means anything.
Result
Gross profit is what is left after the cost of doing the job. Overhead comes out of that: the building, the office wages, the vans, insurance, software and advertising. A healthy gross margin still loses money if overhead is larger.
Get a Free Business AuditHow the calculation works
Revenue less direct costs less overhead gives profit and margin. In a partnership the critical question is where partner compensation sits: treating distributions as profit rather than as compensation for work performed inflates the result, because partners who bill matters are producing revenue the same way associates do and their time has a cost.
What moves the number
- Whether partner compensation is above or below the profit line.
- Leverage, since associate margin is wider than partner margin.
- Realisation and collection, which determine actual revenue.
- Overhead per attorney.
Where this one goes wrong
Profit per partner and profit after a market wage for partner labour are different measures and both are useful, but comparing one firm's figure against another's without knowing which convention each used is meaningless. State it explicitly. The more actionable number is usually contribution by practice area and by attorney, because firm-level profit averages areas that may be subsidising each other, and a firm cannot manage what the average conceals.
Before you quote
- State whether partner compensation is above or below the line.
- Measure contribution by practice area, not just firm total.
- Use collected revenue, not billings.
Questions
About this calculator
Should partner draws count as profit?
Partners who work on matters are producing revenue the way associates do, so a market wage for that work is a cost. What remains is return on ownership. Both conventions exist, and comparing figures across firms without knowing which was used tells you nothing.
Why measure profit by practice area?
Because a firm-level figure averages areas that may be subsidising each other, and the subsidy is invisible in the total. Several firms have discovered on measuring it that their busiest area was their least profitable and had been for years.
Should profit be calculated on billings or collections?
Collections. Billings include work that will be written down and bills that will not be paid, so a profit figure built on them overstates consistently. The gap between the two is a real cost of operating, not a timing difference.
The formula
gross profit = revenue - direct costs
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Please keep the attribution line. It is the only thing we ask in return.
How to use this calculator
- Revenue ($). Enter your own figure; the page starts at $68,000.
- Direct labour ($). Enter your own figure; the page starts at $16,000.
- Disbursements and expert fees ($). Enter your own figure; the page starts at $11,000.
- Other direct costs ($). Enter your own figure; the page starts at $2,200.
The result updates as you type, so you can try a figure, see what it does to gross profit, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Revenue | $68,000 |
| Direct labour | $16,000 |
| Disbursements and expert fees | $11,000 |
| Other direct costs | $2,200 |
What comes out
| Result | Value |
|---|---|
| Gross profit main result | $38,800 |
| Gross margin | 57.1% |
| Total direct cost | $29,200 |
| Profit per working day | $1,764 |
That is $38,800 at a 57.1% margin, about $1,764 for every working day. Overhead still has to come out of it.
How sensitive the answer is
Holding everything else steady and changing only revenue, this is what happens to gross profit. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Revenue ($) | Gross profit |
|---|---|
| $34,000 | $4,800 |
| $51,000 | $21,800 |
| $68,000 example above | $38,800 |
| $102,000 | $72,800 |
| $136,000 | $106,800 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Revenue ($)
- A money amount, starting at $68,000.
- Direct labour ($)
- A money amount, starting at $16,000.
- Disbursements and expert fees ($)
- A money amount, starting at $11,000.
- Other direct costs ($)
- A money amount, starting at $2,200.
What the results tell you
| Result | What it is |
|---|---|
| Gross profit | The headline result. A money figure. |
| Gross margin | A percentage. |
| Total direct cost | A money figure. |
| Profit per working day | A money figure. |
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.