Professional services
Law Practice Matter Economics Calculator
Works the economics of a single matter, where the hours are the uncertainty.
Result
Business arithmetic for running a practice, not legal advice. Fee agreements, contingency limits, trust accounting and advertising are all governed by the rules of professional conduct where you practise, and several are strict. Check the applicable rules before any of this affects a client agreement or a marketing decision. Absorbing overhead by the hour is the honest way to compare matter types, because a matter consuming forty hours uses four times the practice capacity of one consuming ten. Flat-fee work that looks profitable on the fee alone frequently is not once the hours are counted.
Get a Free Business AuditHow the calculation works
Expected fee against the cost of the hours required and any disbursements, giving profit and margin on the matter. For hourly work the fee follows the hours so the risk is collection; for flat fee or contingency work the fee is fixed and the hours are the risk, which reverses the exposure entirely.
What moves the number
- Hours required, which for contested matters has a wide range.
- Fee basis: hourly, flat, or contingency.
- Disbursements and whether they are advanced by the practice.
- Probability of resolution at each stage.
Where this one goes wrong
Matters that settle early and matters that go to trial are different businesses, and pricing a flat fee on the average of the two loses money on the tail: the distribution is skewed, so a handful of matters consume the hours of many. Price flat fees by stage, with scope that ends where the next stage begins, rather than attempting a single figure for an unbounded process. Disbursements advanced by the practice are also funding, not cost, and they tie up cash for however long the matter runs.
Before you quote
- Price flat fees by stage rather than for an unbounded matter.
- Account for the skewed distribution, not the average matter.
- Treat advanced disbursements as cash tied up.
Questions
About this calculator
Why do flat fees lose money on litigation?
Because the hours distribution is skewed rather than symmetric. Most matters resolve early and a few consume enormous time, so a fee priced on the average loses heavily on the tail. Pricing by stage, with scope ending where the next begins, is the usual answer.
Who should carry disbursements?
Where the practice advances them it is funding the matter, and on a long case that can be a substantial amount of cash tied up with no return. Collecting them from the client as incurred, or holding funds in trust against them, avoids financing the matter for free.
How do I price a matter with uncertain hours?
Either hourly, which puts the uncertainty on the client, or staged flat fees with defined scope, which bounds it. A single flat fee for an unbounded process puts all the uncertainty on the practice, and the tail of the distribution is where that becomes expensive.
The formula
profit = collected fee - hours x overhead per hour - direct costs
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How to use this calculator
- Hours per matter. Enter your own figure; the page starts at 26.
- Fee charged ($). Enter your own figure; the page starts at $6,500.
- Share invoiced (%). Enter your own figure; the page starts at 88%.
- Share collected (%). Enter your own figure; the page starts at 92%.
- Overhead per billable hour ($). Annual overhead divided by billable hours.
- Direct costs per matter ($). Enter your own figure; the page starts at $300.
The result updates as you type, so you can try a figure, see what it does to profit per matter, 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 |
|---|---|
| Hours per matter | 26 |
| Fee charged | $6,500 |
| Share invoiced | 88% |
| Share collected | 92% |
| Overhead per billable hour | $62 |
| Direct costs per matter | $300 |
What comes out
| Result | Value |
|---|---|
| Profit per matter main result | $3,350 |
| Actually collected | $5,262 |
| Effective hourly rate | $202.40 |
| Overhead absorbed | $1,612 |
| Margin | 63.67% |
Each matter earns $3,350 at an effective $202.40 an hour, a 63.67% margin after absorbing $1,612 of overhead.
How sensitive the answer is
Holding everything else steady and changing only fee charged, this is what happens to profit per matter. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Fee charged ($) | Profit per matter |
|---|---|
| $3,250 | $719.20 |
| $4,875 | $2,035 |
| $6,500 example above | $3,350 |
| $9,750 | $5,982 |
| $13,000 | $8,613 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Hours per matter
- A number, between 0 and 2000, starting at 26.
- Fee charged ($)
- A money amount, starting at $6,500.
- Share invoiced (%)
- A percentage, between 0 and 100, starting at 88%.
- Share collected (%)
- A percentage, between 0 and 100, starting at 92%.
- Overhead per billable hour ($)
- Annual overhead divided by billable hours.
- Direct costs per matter ($)
- A money amount, starting at $300.
What the results tell you
| Result | What it is |
|---|---|
| Profit per matter | The headline result. A money figure. |
| Actually collected | A money figure. |
| Effective hourly rate | A money figure. |
| Overhead absorbed | A money figure. |
| Margin | A percentage. |
Keep going
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