Law firms report lawyer oversupply and 'chronically underperforming lawyers' Forum

[Monochromatic Oeuvre]

The framing of these issues is in line with a perspective where the profession is only about money and where no value is placed on having a life. All firms would be massively profitable at 1200 hours billed a year (which used to be the standard). The extra 1200 on average is all gravy but somehow this gravy has turned into an expectation and a minimum.

The bolded isn't true.

Out of curiosity, what do you think the break even point is on hours/profitability? Are you saying that it varies based on billing rate between firms or something? Looking at my receivables from 1200 hours of work, I'm hard pressed to see how I'm not generating a significant amount of profit for the firm, even taking into account overhead, etc. But honestly I have no idea. They just seem to be doing well off of me.

Most large firms based in NYC have expenses per lawyer of over $600k. A lot of them are closer to the $800k range. Even if your firm was fairly leveraged and the partners only made a little bit more than senior associates/of counsel (assuming anyone would ever put up with partner-level bullshit if that's where the money capped out, which they wouldn't), the average lawyer still would still need to make $800k-900k to keep things afloat.

While the trope that "associates aren't profitable until the third year" isn't necessarily literally true, the point is that the business model would collapse on first- and second-year profitability numbers. Sure, there's plenty of partner greed, but you're paying for much more in legitimate pro rata expenses than you are in Palm Beach atrium renovations.

800k seems really high in my opinion. A lot of ny law firms have economies of scale (it and a lot of support is firm wide and based in lower cost locales). Rent is an expense but there seems to be other businesses with lower margins based in NYC A Office space and doing ok. Also, rent is a relatively fixed costs that does not expand with attorney numbers.

Even a few years ago, S&C was already over $800k per lawyer and Cravath was at something like $775k. Factor in the salary bump and generalized inflation and you'll get a few more approaching those numbers, although of course more would be in the $600k-700k range.

Rent is only really a fixed expense within a given tranche. When you lease by floor, obviously it's fixed within the capacity for what you have, but after you've filled the 50 attorneys and 25 support staff or whatever the capacity that your prescribed level of flexibility demands, you need to lease more space. If you're a bigger office like Skadden or Paul Weiss in NYC, that might be just a year or two of headcount shifting. If you're too inflexible with respect to space, you have to either cram people tighter (which everyone hates) or risk not having enough people to do work/overworking people (which are both bad). It's not fixed in a meaningful sense because your space needs might be very different in 2007 than they are in 2009.

[Monochromatic Oeuvre]

A lot of the overhead in the 700-800k figures likely includes overhead that scales with revenue--not with lawyer count. Whether you have 2 associates billing 1000 each or 1 billing 2000, that won't change the need for paralegals, practice support, vendor costs, etc.

But head count absolutely change your costs for real estate, which is by far the single largest overhead component. Even in Manhattan firms require about 1000 square feet per lawyer. Same goes for utilities, hardware, recruiting, training, maintenance/upkeep etc.

If firms didn't incur additional costs from having four first-years making $135k bill 1500 instead of having three first-years making $180k bill 2000, they'd have no reason not to do that. But I'd bet they'd lose more money by doing that than they could gain in savings from attrition (which is surprisingly consistent from firm to firm, even those with wildly different reputations).

My firm has one of those work space for start up companies as a subtennant. They rent out private offices for 600 bucks an office per month. It's expensive but not like 200k/year expensive.

No idea what the subtenant market looks like, but in Midtown commercial real estate can lease for $75/sq ft or more for modern buildings in good locations. For large firms that gets in the tens of millions. See e.g. Kirkland's NYC lease renewal a couple years ago.

[rpupkin]

The business model would collapse because it is premised upon partners making 3 million per year on average.

.
How many law firms have PPPs north of 3 million? Maybe 10? The majority of big law firms have PPP in the $750K to $1.5M range. Let's say those firms currently have associates who bill an average of 1,800 hour per year. If, as you suggest, associates should bill only 1,200 hours per year at those firms, how is it that those firms would be "massively profitable?"

[Pokemon]

The framing of these issues is in line with a perspective where the profession is only about money and where no value is placed on having a life. All firms would be massively profitable at 1200 hours billed a year (which used to be the standard). The extra 1200 on average is all gravy but somehow this gravy has turned into an expectation and a minimum.

The bolded isn't true.

Out of curiosity, what do you think the break even point is on hours/profitability? Are you saying that it varies based on billing rate between firms or something? Looking at my receivables from 1200 hours of work, I'm hard pressed to see how I'm not generating a significant amount of profit for the firm, even taking into account overhead, etc. But honestly I have no idea. They just seem to be doing well off of me.

Most large firms based in NYC have expenses per lawyer of over $600k. A lot of them are closer to the $800k range. Even if your firm was fairly leveraged and the partners only made a little bit more than senior associates/of counsel (assuming anyone would ever put up with partner-level bullshit if that's where the money capped out, which they wouldn't), the average lawyer still would still need to make $800k-900k to keep things afloat.

While the trope that "associates aren't profitable until the third year" isn't necessarily literally true, the point is that the business model would collapse on first- and second-year profitability numbers. Sure, there's plenty of partner greed, but you're paying for much more in legitimate pro rata expenses than you are in Palm Beach atrium renovations.

800k seems really high in my opinion. A lot of ny law firms have economies of scale (it and a lot of support is firm wide and based in lower cost locales). Rent is an expense but there seems to be other businesses with lower margins based in NYC A Office space and doing ok. Also, rent is a relatively fixed costs that does not expand with attorney numbers.

Even a few years ago, S&C was already over $800k per lawyer and Cravath was at something like $775k. Factor in the salary bump and generalized inflation and you'll get a few more approaching those numbers, although of course more would be in the $600k-700k range.

Rent is only really a fixed expense within a given tranche. When you lease by floor, obviously it's fixed within the capacity for what you have, but after you've filled the 50 attorneys and 25 support staff or whatever the capacity that your prescribed level of flexibility demands, you need to lease more space. If you're a bigger office like Skadden or Paul Weiss in NYC, that might be just a year or two of headcount shifting. If you're too inflexible with respect to space, you have to either cram people tighter (which everyone hates) or risk not having enough people to do work/overworking people (which are both bad). It's not fixed in a meaningful sense because your space needs might be very different in 2007 than they are in 2009.

I am still not fully convinced by those numbers. First I think there is a difference between cost of a new attorney at the firm for a year and dividing firm expenditures by lawyer headcount. 800k for a new attorney in NYC seems to me extremely high. I stress this difference between a firm can more readily adjust to the cost of the additional attorney whereas the cost of expenditure per headcount is harder. Also, when firms go on firing sprees their expenditures per headcount probabaly increase since general costs are now spread among fewer attorneys.

Also, if you look at cravath (I have rounded numbers for ease of understanding) they have about 500 attorneys and revenues of 700m. They have 130 equity partners and with profits of around 3.5 million, they should have minimum 450 million in profits. That means their total costs should be in the 250 million range.

Divide that by headcount and we are at about 500k per attorney. If we remove partners from this equation, it comes down to 675k per associate.

If tomorrow cravath hires a lateral from another firm, beyond salary and recruiting fee, I doubt the additional attorney would cost more than 200k.

[Monochromatic Oeuvre]

The framing of these issues is in line with a perspective where the profession is only about money and where no value is placed on having a life. All firms would be massively profitable at 1200 hours billed a year (which used to be the standard). The extra 1200 on average is all gravy but somehow this gravy has turned into an expectation and a minimum.

The bolded isn't true.

Out of curiosity, what do you think the break even point is on hours/profitability? Are you saying that it varies based on billing rate between firms or something? Looking at my receivables from 1200 hours of work, I'm hard pressed to see how I'm not generating a significant amount of profit for the firm, even taking into account overhead, etc. But honestly I have no idea. They just seem to be doing well off of me.

Most large firms based in NYC have expenses per lawyer of over $600k. A lot of them are closer to the $800k range. Even if your firm was fairly leveraged and the partners only made a little bit more than senior associates/of counsel (assuming anyone would ever put up with partner-level bullshit if that's where the money capped out, which they wouldn't), the average lawyer still would still need to make $800k-900k to keep things afloat.

While the trope that "associates aren't profitable until the third year" isn't necessarily literally true, the point is that the business model would collapse on first- and second-year profitability numbers. Sure, there's plenty of partner greed, but you're paying for much more in legitimate pro rata expenses than you are in Palm Beach atrium renovations.

800k seems really high in my opinion. A lot of ny law firms have economies of scale (it and a lot of support is firm wide and based in lower cost locales). Rent is an expense but there seems to be other businesses with lower margins based in NYC A Office space and doing ok. Also, rent is a relatively fixed costs that does not expand with attorney numbers.

Even a few years ago, S&C was already over $800k per lawyer and Cravath was at something like $775k. Factor in the salary bump and generalized inflation and you'll get a few more approaching those numbers, although of course more would be in the $600k-700k range.

Rent is only really a fixed expense within a given tranche. When you lease by floor, obviously it's fixed within the capacity for what you have, but after you've filled the 50 attorneys and 25 support staff or whatever the capacity that your prescribed level of flexibility demands, you need to lease more space. If you're a bigger office like Skadden or Paul Weiss in NYC, that might be just a year or two of headcount shifting. If you're too inflexible with respect to space, you have to either cram people tighter (which everyone hates) or risk not having enough people to do work/overworking people (which are both bad). It's not fixed in a meaningful sense because your space needs might be very different in 2007 than they are in 2009.

I am still not fully convinced by those numbers. First I think there is a difference between cost of a new attorney at the firm for a year and dividing firm expenditures by lawyer headcount. 800k for a new attorney in NYC seems to me extremely high. I stress this difference between a firm can more readily adjust to the cost of the additional attorney whereas the cost of expenditure per headcount is harder. Also, when firms go on firing sprees their expenditures per headcount probabaly increase since general costs are now spread among fewer attorneys.

Also, if you look at cravath (I have rounded numbers for ease of understanding) they have about 500 attorneys and revenues of 700m. They have 130 equity partners and with profits of around 3.5 million, they should have minimum 450 million in profits. That means their total costs should be in the 250 million range.

Divide that by headcount and we are at about 500k per attorney. If we remove partners from this equation, it comes down to 675k per associate.

If tomorrow cravath hires a lateral from another firm, beyond salary and recruiting fee, I doubt the additional attorney would cost more than 200k.

As I've said before, not every cost is variable by every single lawyer. If you're at 449 attorneys, and you already have a spare office, and all kinds of people like a secrertary, IT, billing, marketing already have some slack time such that you don't need to hire anyone new, then yeah, the immediate marginal cost for Attorney #450 isn't much higher than the person's compensation plus the cost of recruiting and training. But each person you bring in is someone who takes up space, and who adds to the workload of the support staff, until eventually, you need another paralegal, another librarian, another mailroom guy, another accountant, and eventually, another floor in the office (or, if the firm size stays constant, they're the reason the firm can't save money in any of those areas--it's all the same from an accounting perspective). If you can hold 50 attorneys per floor, it misses the point to see Attorney #450 as costing almost nothing while seeing Attorney #451 (who requires the firm to get another floor) as wildly expensive. The final straw that breaks the camel's back isn't any more responsible than the rest that came before it.

Also, no idea who gave you those Cravath numbers, but they have, as of today, 82 equity partners, not 130.

[Anonymous User]

It's a weird way to phrase it "chronically underperforming". Law firms turn through people so it would make sense that it is difficult to maintain an associate base.

At a firm, job security is low,and when you work there, there is always a sense of urgency to look for the next job.

[Pokemon]

Thought cravath had 130 because I did a search for partners on their website and got 130 hits, though probably not most scientific way to go about this. I can rerun later #s with new info, but am guessing if the top of my head that cost would be 1 mil per associate or 900k per attorney.

As to your first paragraph, I do not really follow it. Economies of scale would say that the bigger the office the more opportunity for consolidation and more leverage in dealings with services so cheaper cost per attorney. There might be a reason why law firms do not abide by this rule which I am not aware off, but generally speaking a 500 attorney ny office should be more profitable than a 100 attorney ny office. Maybe the point is that a ny office cannot grow to 500 without dead wood, but feel like that is an entirely different discussion.

[Nebby]

It's a weird way to phrase it "chronically underperforming". Law firms turn through people so it would make sense that it is difficult to maintain an associate base.

At a firm, job security is low,and when you work there, there is always a sense of urgency to look for the next job.

Low job security the reason for anonymous posting?

[dixiecupdrinking]

I am no business whiz, but for the life of me I can't imagine why a firm's marginal cost per associate should be like half a million dollars over salary / benefits.

[nealric]

The problem with this report (and I think the problem with consultants in many contexts) is that makes recommendations that may produce short-term profitability without sufficiently considering what those recommendations mean long-term for a business.

In order to survive, a law firm needs two things:
1) Lawyers who can bring in work
2) Lawyers who can do the work sufficiently well that the lawyers who bring in work won't have trouble selling their services.

The report states that hiring lateral partners doesn't drive profitability. This is largely true- you have to overpay because a lateral partner is taking a large risk and is going to want to be compensated for that risk. It's also very difficult to accurately assess how portable a given partner's book really is and how stable that book really is.

In the immediate, you can goose profits by keeping the same number of rainmakers and just cutting costs on delivering the work. But eventually, the work needs to come from somewhere. Even old rainmakers have a shelf life- they all eventually go to other firms, retire, or die. A workforce that faces constant cost cutting pressure is a demoralized workforce- one that is far less likely to produce rainmakers in-house by bringing associates through the ranks. An unhappy associate workforce means higher turnover, and future rainmakers walking out the door. You can't just cut your worst associates and assume your best ones will stick around. Also, a demoralized workforce isn't going to produce the same work product quality as an engaged one. Yes, the rainmaker partners are supposed to supervise, but they have to rely on service partners and associates to do the bulk of it- they can't guarantee high quality and timely product by themselves.

Long story short, you can cut your way to immediate profitability, but you can't cut your way to growth over the long term.

[jkpolk]

I am no business whiz, but for the life of me I can't imagine why a firm's marginal cost per associate should be like half a million dollars over salary / benefits.

Support staff is a big chunk of it. Rent. Recruiting. Various consultants (strategy, branding, etc.). Training/programs. Non-billable expenses for various educational/BD stuff. BD. It all costs money. It's not money that's spent on each associate directly but all the costs associated with running a big white-collar-world business spread over those associates.

[Npret]

The problem with this report (and I think the problem with consultants in many contexts) is that makes recommendations that may produce short-term profitability without sufficiently considering what those recommendations mean long-term for a business.

In order to survive, a law firm needs two things:
1) Lawyers who can bring in work
2) Lawyers who can do the work sufficiently well that the lawyers who bring in work won't have trouble selling their services.

The report states that hiring lateral partners doesn't drive profitability. This is largely true- you have to overpay because a lateral partner is taking a large risk and is going to want to be compensated for that risk. It's also very difficult to accurately assess how portable a given partner's book really is and how stable that book really is.

In the immediate, you can goose profits by keeping the same number of rainmakers and just cutting costs on delivering the work. But eventually, the work needs to come from somewhere. Even old rainmakers have a shelf life- they all eventually go to other firms, retire, or die. A workforce that faces constant cost cutting pressure is a demoralized workforce- one that is far less likely to produce rainmakers in-house by bringing associates through the ranks. An unhappy associate workforce means higher turnover, and future rainmakers walking out the door. You can't just cut your worst associates and assume your best ones will stick around. Also, a demoralized workforce isn't going to produce the same work product quality as an engaged one. Yes, the rainmaker partners are supposed to supervise, but they have to rely on service partners and associates to do the bulk of it- they can't guarantee high quality and timely product by themselves.

Long story short, you can cut your way to immediate profitability, but you can't cut your way to growth over the long term.

This report only mentions associates in one table that I could find. Its the table regarding whether people are sufficiently busy. There is one mention about dealing the future of the firm to make sure retired partners get their pensions.
It's strange to me but dealing with associates isn't on their radar. I feel possibly that the availability of associates is just not an issue for firms. 68% of firms said they are making fewer equity partners and expect that to continue. I think firms don't see associate turnover as an issue.

[Monochromatic Oeuvre]

As to your first paragraph, I do not really follow it. Economies of scale would say that the bigger the office the more opportunity for consolidation and more leverage in dealings with services so cheaper cost per attorney. There might be a reason why law firms do not abide by this rule which I am not aware off, but generally speaking a 500 attorney ny office should be more profitable than a 100 attorney ny office. Maybe the point is that a ny office cannot grow to 500 without dead wood, but feel like that is an entirely different discussion.

Economies of scale are much less applicable when the product you are producing and selling is time. Simply put, almost everything needs to scale up as a firm grows. The few areas where you can take advantage of scale--maybe you get discounts on your bulk orders of hardware, or Cokes for the firm cafeteria--tend to be dwarfed by the "dead weight" inherent in such growth.

[Monochromatic Oeuvre]

I am no business whiz, but for the life of me I can't imagine why a firm's marginal cost per associate should be like half a million dollars over salary / benefits.

By the time you add up all the secretaries, paralegals, consultants, IT guys, billing managers, recruiters, HR people, marketers, records managers, collections people, accountants, librarians, cafeteria guys mailroom guys, janitors, a COO and CFO, security etc. every lawyer is already supporting about one non-legal staff person.

Then you get into rent (covered above), utilities, hardware, software, maintenance, summer associates and their events, recruiting trips and hotels, pensions, publication subscriptions, conferences, car services, and a million more little things (I could probably come up with a hundred if I spent a week with a notepad). Most firms are at maybe $350k-450k over the average salary/bonus of their non-partners, but you can guess how everything adds up.

[Anonymous User]

The overhead costs at biglaw must be ridiculously extreme. I'm at a lit boutique that pays above market w/ above market bonuses in NYC, and all associates have their own office. The total comp for first years is probably >$250k. Lockstep Cravath scale raises. And we're not Wachtell or Kellogg. I mean obviously the firm is successful but I think this super generous compensation is accounted for in that we have like... 4 secretaries, 3-5 legal assistants, and like 3 paralegals for ~40 attorneys. Name partner is the only guy with his own secretary; other partners share. We have like ONE PERSON do HR, payroll, etc. and ONE PERSON do recruiting, marketing, and a bunch of other stuff. We have ONE IT guy. No mailroom, no word processing dept, no travel dept, no accounting dept, no librarians, no janitors, etc.

If bigfirms trimmed heavily on support staff and some QoL perks, they could vastly increase PPL.

We still get car service and meals and travel and stuff expensed, but IIRC that stuff is negotiated so that the client pays, and I think biglaw does the same?

ETA - I think a lot of overhead is money down the toilet in order to maintain an air of "prestige", which includes an oversized support staff.

[nealric]

The problem with this report (and I think the problem with consultants in many contexts) is that makes recommendations that may produce short-term profitability without sufficiently considering what those recommendations mean long-term for a business.

In order to survive, a law firm needs two things:
1) Lawyers who can bring in work
2) Lawyers who can do the work sufficiently well that the lawyers who bring in work won't have trouble selling their services.

The report states that hiring lateral partners doesn't drive profitability. This is largely true- you have to overpay because a lateral partner is taking a large risk and is going to want to be compensated for that risk. It's also very difficult to accurately assess how portable a given partner's book really is and how stable that book really is.

In the immediate, you can goose profits by keeping the same number of rainmakers and just cutting costs on delivering the work. But eventually, the work needs to come from somewhere. Even old rainmakers have a shelf life- they all eventually go to other firms, retire, or die. A workforce that faces constant cost cutting pressure is a demoralized workforce- one that is far less likely to produce rainmakers in-house by bringing associates through the ranks. An unhappy associate workforce means higher turnover, and future rainmakers walking out the door. You can't just cut your worst associates and assume your best ones will stick around. Also, a demoralized workforce isn't going to produce the same work product quality as an engaged one. Yes, the rainmaker partners are supposed to supervise, but they have to rely on service partners and associates to do the bulk of it- they can't guarantee high quality and timely product by themselves.

Long story short, you can cut your way to immediate profitability, but you can't cut your way to growth over the long term.

This report only mentions associates in one table that I could find. Its the table regarding whether people are sufficiently busy. There is one mention about dealing the future of the firm to make sure retired partners get their pensions.
It's strange to me but dealing with associates isn't on their radar. I feel possibly that the availability of associates is just not an issue for firms. 68% of firms said they are making fewer equity partners and expect that to continue. I think firms don't see associate turnover as an issue.

It's not just associates per-se. Its' the whole business mentality of "cut you way to profitability." It's a temporary fix at best.

[Npret]

The problem with this report (and I think the problem with consultants in many contexts) is that makes recommendations that may produce short-term profitability without sufficiently considering what those recommendations mean long-term for a business.

In order to survive, a law firm needs two things:
1) Lawyers who can bring in work
2) Lawyers who can do the work sufficiently well that the lawyers who bring in work won't have trouble selling their services.

The report states that hiring lateral partners doesn't drive profitability. This is largely true- you have to overpay because a lateral partner is taking a large risk and is going to want to be compensated for that risk. It's also very difficult to accurately assess how portable a given partner's book really is and how stable that book really is.

In the immediate, you can goose profits by keeping the same number of rainmakers and just cutting costs on delivering the work. But eventually, the work needs to come from somewhere. Even old rainmakers have a shelf life- they all eventually go to other firms, retire, or die. A workforce that faces constant cost cutting pressure is a demoralized workforce- one that is far less likely to produce rainmakers in-house by bringing associates through the ranks. An unhappy associate workforce means higher turnover, and future rainmakers walking out the door. You can't just cut your worst associates and assume your best ones will stick around. Also, a demoralized workforce isn't going to produce the same work product quality as an engaged one. Yes, the rainmaker partners are supposed to supervise, but they have to rely on service partners and associates to do the bulk of it- they can't guarantee high quality and timely product by themselves.

Long story short, you can cut your way to immediate profitability, but you can't cut your way to growth over the long term.

This report only mentions associates in one table that I could find. Its the table regarding whether people are sufficiently busy. There is one mention about dealing the future of the firm to make sure retired partners get their pensions.
It's strange to me but dealing with associates isn't on their radar. I feel possibly that the availability of associates is just not an issue for firms. 68% of firms said they are making fewer equity partners and expect that to continue. I think firms don't see associate turnover as an issue.

It's not just associates per-se. Its' the whole business mentality of "cut you way to profitability." It's a temporary fix at best.

I mentioned associates because that's most relevant here. The report seems to assume demand going down and competition increasing. So there isn't much of a growth strategy discussed. Maybe that wasn't the point of the relort.

[dixiecupdrinking]

I am no business whiz, but for the life of me I can't imagine why a firm's marginal cost per associate should be like half a million dollars over salary / benefits.

By the time you add up all the secretaries, paralegals, consultants, IT guys, billing managers, recruiters, HR people, marketers, records managers, collections people, accountants, librarians, cafeteria guys mailroom guys, janitors, a COO and CFO, security etc. every lawyer is already supporting about one non-legal staff person.

Then you get into rent (covered above), utilities, hardware, software, maintenance, summer associates and their events, recruiting trips and hotels, pensions, publication subscriptions, conferences, car services, and a million more little things (I could probably come up with a hundred if I spent a week with a notepad). Most firms are at maybe $350k-450k over the average salary/bonus of their non-partners, but you can guess how everything adds up.

Fine, but isn't the more relevant concern the marginal cost of hiring an associate versus the revenue they will generate? Many of these things are either completely fixed costs or fixed within a general band based on size of the organization. If I want to know if I'm "profitable" to the firm, I want to know whether it is financially better off with me or without me, ie, revenue versus my compensation plus overhead directly or indirectly attributable to my employment. I am less interested in whether I'm covering my pro rata portion of the marketing budget.

Even if I had to literally pay my secretary solely out of my own collections, I don't see how you get to half a million in marginal cost per associate.

[Anonymous User]

Perhaps I'm oversimplifying it, but at my current firm I've been told by multiple partners that you must generate 3x your salary in receipts for you to be a "profitable" associate... ie if you made a salary of $180k, you need to generate at least $540k.

[Monochromatic Oeuvre]

I am no business whiz, but for the life of me I can't imagine why a firm's marginal cost per associate should be like half a million dollars over salary / benefits.

By the time you add up all the secretaries, paralegals, consultants, IT guys, billing managers, recruiters, HR people, marketers, records managers, collections people, accountants, librarians, cafeteria guys mailroom guys, janitors, a COO and CFO, security etc. every lawyer is already supporting about one non-legal staff person.

Then you get into rent (covered above), utilities, hardware, software, maintenance, summer associates and their events, recruiting trips and hotels, pensions, publication subscriptions, conferences, car services, and a million more little things (I could probably come up with a hundred if I spent a week with a notepad). Most firms are at maybe $350k-450k over the average salary/bonus of their non-partners, but you can guess how everything adds up.

Fine, but isn't the more relevant concern the marginal cost of hiring an associate versus the revenue they will generate? Many of these things are either completely fixed costs or fixed within a general band based on size of the organization. If I want to know if I'm "profitable" to the firm, I want to know whether it is financially better off with me or without me, ie, revenue versus my compensation plus overhead directly or indirectly attributable to my employment. I am less interested in whether I'm covering my pro rata portion of the marketing budget.

Even if I had to literally pay my secretary solely out of my own collections, I don't see how you get to half a million in marginal cost per associate.

Very few of a firm's costs are completely fixed. They're almost all fixed within bands (office space bought by floor, support staff who can each handle X people before you need to hire another one, etc.). Obviously it would be best if you could operate at the high end of these bands before you need to move to another one, but the realities of business are that it's usually not possible to do that. Demand for firm resources comes in waves, and firms will ordinarily budget for the peak demand even if it means they operate at maybe 80-90% capacity the rest of the time. For example, most large NYC firms have more offices than they need on an average day, in order to be able to accommodate summers, visiting attorneys, laterals on short notice, etc. The empty 7-10% of offices they have seem like a waste, except sometimes...they aren't.

So yeah, if the firm has an unused office, and secretaries, paras, IT, billers, mailroom etc. all have slack to accommodate you, then your marginal cost above your compensation is negligible. But that sort of misses the forest for the trees, because eventually there has to be SOME number that ends whatever slack (given a predetermined level of flexibility) in each of those areas. If I can fit my 500 employees into 10 floors but need to lease another floor for #501, it's not really practical accounting to say #500 is cheap while #501 costs millions of dollars. The final straw that breaks the camel's back isn't any more responsible than the ones before it, so to speak.

Obviously it's advantageous if you can maximize that capacity. Any business would try to do that. Entering those additional bands of costs is why most large firms, generally speaking, try to
stay roughly the same size until they see significant opportunities for growth. But it can be hard to predict whether your demand in 18 months is going to be up 20% or down 20%. So you may not care about your pro rata costs of insurance, banking fees, conference call providers, etc., but in the end it's the right way to view your business model long-term.

That doesn't mean it has to be as expensive as it is. There's not really a highly practical reason for firms to have the 50th floor on Park Avenue, or mahogany redesigns, or black cars, or suites at Yankee Stadium, or to sponsor museums, or to take the summers on some Hudson cruise, or even to have summers at all. But it's also an industry run by millionaires designed to serve multimillionaires where there's a big first-mover disadvantage to make any kind of serious change to the business model.

[lolwat]

So yeah, if the firm has an unused office, and secretaries, paras, IT, billers, mailroom etc. all have slack to accommodate you, then your marginal cost above your compensation is negligible. But that sort of misses the forest for the trees, because eventually there has to be SOME number that ends whatever slack (given a predetermined level of flexibility) in each of those areas. If I can fit my 500 employees into 10 floors but need to lease another floor for #501, it's not really practical accounting to say #500 is cheap while #501 costs millions of dollars. The final straw that breaks the camel's back isn't any more responsible than the ones before it, so to speak.

I think this is the disconnect in the perspectives being discussed here re marginal cost v overall cost

[sublime]

The overhead costs at biglaw must be ridiculously extreme. I'm at a lit boutique that pays above market w/ above market bonuses in NYC, and all associates have their own office. The total comp for first years is probably >$250k. Lockstep Cravath scale raises. And we're not Wachtell or Kellogg. I mean obviously the firm is successful but I think this super generous compensation is accounted for in that we have like... 4 secretaries, 3-5 legal assistants, and like 3 paralegals for ~40 attorneys. Name partner is the only guy with his own secretary; other partners share. We have like ONE PERSON do HR, payroll, etc. and ONE PERSON do recruiting, marketing, and a bunch of other stuff. We have ONE IT guy. No mailroom, no word processing dept, no travel dept, no accounting dept, no librarians, no janitors, etc.

If bigfirms trimmed heavily on support staff and some QoL perks, they could vastly increase PPL.

We still get car service and meals and travel and stuff expensed, but IIRC that stuff is negotiated so that the client pays, and I think biglaw does the same?

ETA - I think a lot of overhead is money down the toilet in order to maintain an air of "prestige", which includes an oversized support staff.

I feel like a lot of certain firm's appeal is pure manpower to handle whatever at any time. Also, 24/7 support staff is often clutch as fuck. And at least paras have to work a ton of overtime, without complaint. It takes a huge number of support people to run an office with 500+ in some cases, attorneys. And it's kind of ridiculous to compare overhead between a boutique and mega firms.

[Pokemon]

So yeah, if the firm has an unused office, and secretaries, paras, IT, billers, mailroom etc. all have slack to accommodate you, then your marginal cost above your compensation is negligible. But that sort of misses the forest for the trees, because eventually there has to be SOME number that ends whatever slack (given a predetermined level of flexibility) in each of those areas. If I can fit my 500 employees into 10 floors but need to lease another floor for #501, it's not really practical accounting to say #500 is cheap while #501 costs millions of dollars. The final straw that breaks the camel's back isn't any more responsible than the ones before it, so to speak.

I think this is the disconnect in the perspectives being discussed here re marginal cost v overall cost

But firms would not get larger without a reason and if they are getting larger then cost per lawyer should be cheaper. One of the reasons why biglaw firms seem to have a lot more perks than smaller firms is because they can spread that budget (let's say marketing) among many more people. That is also partially why they merge. I really do not see how this has been addressed.

If we are discussing just overall cost, then there should be no mental gymnastics or guesses at all. The formula for that should be:

(Revenues - (profits per partners * number of partners)) / attorneys

[Pokemon]

The overhead costs at biglaw must be ridiculously extreme. I'm at a lit boutique that pays above market w/ above market bonuses in NYC, and all associates have their own office. The total comp for first years is probably >$250k. Lockstep Cravath scale raises. And we're not Wachtell or Kellogg. I mean obviously the firm is successful but I think this super generous compensation is accounted for in that we have like... 4 secretaries, 3-5 legal assistants, and like 3 paralegals for ~40 attorneys. Name partner is the only guy with his own secretary; other partners share. We have like ONE PERSON do HR, payroll, etc. and ONE PERSON do recruiting, marketing, and a bunch of other stuff. We have ONE IT guy. No mailroom, no word processing dept, no travel dept, no accounting dept, no librarians, no janitors, etc.

If bigfirms trimmed heavily on support staff and some QoL perks, they could vastly increase PPL.

We still get car service and meals and travel and stuff expensed, but IIRC that stuff is negotiated so that the client pays, and I think biglaw does the same?

ETA - I think a lot of overhead is money down the toilet in order to maintain an air of "prestige", which includes an oversized support staff.

I feel like a lot of certain firm's appeal is pure manpower to handle whatever at any time. Also, 24/7 support staff is often clutch as fuck. And at least paras have to work a ton of overtime, without complaint. It takes a huge number of support people to run an office with 500+ in some cases, attorneys. And it's kind of ridiculous to compare overhead between a boutique and mega firms.

Yep and at the end of the day boutiques cannot afford the perks of let's say 24/7 support because they do not have enough attorneys to spread those costs among. Biglaw does. That is why I find it hard to believe that the argument here is that as some of these biglaw firms increase in size they become less profitable per new attorney.


Again, if the discussion is that biglaw has dead wood and boutiques do not, that is entirely feasible. I just think we get into territory at that point where none of us has any idea about how it works. I have no clue for example whether my tax group is profitable or hurts the entire office and whether we would be better off without them but for the reputational hit that we cannot do tax. I can also imagine boutiques suffering in market cause some biglaw firms comes and tells them any issue that arises they can solve cause they have across the field expertise and they are not specialized in just one area.

I do think that firms have aim to resolve this though by monitoring how profitable each group is and providing resources such as summers or laterals accordingly.

[Npret]

The overhead costs at biglaw must be ridiculously extreme. I'm at a lit boutique that pays above market w/ above market bonuses in NYC, and all associates have their own office. The total comp for first years is probably >$250k. Lockstep Cravath scale raises. And we're not Wachtell or Kellogg. I mean obviously the firm is successful but I think this super generous compensation is accounted for in that we have like... 4 secretaries, 3-5 legal assistants, and like 3 paralegals for ~40 attorneys. Name partner is the only guy with his own secretary; other partners share. We have like ONE PERSON do HR, payroll, etc. and ONE PERSON do recruiting, marketing, and a bunch of other stuff. We have ONE IT guy. No mailroom, no word processing dept, no travel dept, no accounting dept, no librarians, no janitors, etc.

If bigfirms trimmed heavily on support staff and some QoL perks, they could vastly increase PPL.

We still get car service and meals and travel and stuff expensed, but IIRC that stuff is negotiated so that the client pays, and I think biglaw does the same?

ETA - I think a lot of overhead is money down the toilet in order to maintain an air of "prestige", which includes an oversized support staff.

I feel like a lot of certain firm's appeal is pure manpower to handle whatever at any time. Also, 24/7 support staff is often clutch as fuck. And at least paras have to work a ton of overtime, without complaint. It takes a huge number of support people to run an office with 500+ in some cases, attorneys. And it's kind of ridiculous to compare overhead between a boutique and mega firms.

Completely agree. I guess they take turns delivering the mail every day.
I also wonder if that anon read the report in which cutting support staff is one of the main things firms are doing to make money. I personally don't think having support staff is a waste to help you get your job done more efficiently when you've been up for 24 hours.

Edit to add: someone has to have janitors unless you are also taking turns vacumming every night.
Also, laughing at the idea you can have one accountant or HR person for an office of 500 lawyers. It's a joke.