Professional services
Law Practice Retainer Profit Calculator
Works profit on retainer arrangements, where hours consumed decides it entirely.
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
Retainer revenue less the cost of the hours actually consumed, giving profit per client and across the book. Because the fee is fixed, profit is purely a function of usage, and the distribution matters more than the average: a book where most clients use little and a few use heavily can show an acceptable average while the heavy users lose money every month.
What moves the number
- Hours consumed per client against hours priced.
- The spread of usage across the book, not the average.
- Who delivers the work, since cost varies by level.
- Scope definition.
Where this one goes wrong
Track hours per retainer client individually rather than in aggregate, because the aggregate conceals the clients that are unprofitable and those are the ones that need the conversation. Repricing or rescoping an over-using client is uncomfortable and far cheaper than subsidising them indefinitely. Delegation is the other lever: retainer work that only the owner handles is expensive at a fixed fee, while work a paralegal can do at the same fee is a different margin entirely.
Before you quote
- Track hours per retainer client, not in aggregate.
- Reprice or rescope persistent over-users.
- Delegate retainer work where the matter allows.
Questions
About this calculator
Why do retainers lose money?
Because the fee is fixed and the usage is not. A book where most clients use little and a few use heavily can show a decent average while the heavy users lose money monthly, and the aggregate figure conceals exactly which clients they are.
What do I do about an over-using client?
Reprice or rescope the arrangement. It is an uncomfortable conversation and much cheaper than subsidising them indefinitely, and a client genuinely using that much value usually accepts a fee that reflects it when it is explained.
Does delegation change retainer profitability?
Substantially, because the fee is fixed regardless of who does the work. Retainer work handled only by the owner is expensive at a flat fee, while the same work delivered by a paralegal where the matter allows is a different margin entirely.
The formula
gross profit = revenue - direct costs
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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.