Do firms really “lose money” on first years? Forum

[2013]

I’ve always been told that firms lose money in first years.

Let’s say the firm bills out a first year associate at 350 (to be conservative) and the associate bills 1900 hours, that’s 665,000.

After salary and bonus for the associate, the firm is left with ~450,000. I know the firm has to subsidize benefits and stuff, which I’d assume is around 20,000. Then rent for the office is probably $20,000 for the year. That leaves 410,000. Take a chunk of that to pay for assistants (say 60k).

The firm is still left with around 350k for equity shares.

Obviously these numbers are rough estimates and the leftover amount should be much higher.

But I’ve heard more and more recently that firms don’t like first years because they “lose money” on them.

[worklifewhat]

I’ve always been told that firms lose money in first years.

Let’s say the firm bills out a first year associate at 350 (to be conservative) and the associate bills 1900 hours, that’s 665,000.

After salary and bonus for the associate, the firm is left with ~450,000. I know the firm has to subsidize benefits and stuff, which I’d assume is around 20,000. Then rent for the office is probably $20,000 for the year. That leaves 410,000. Take a chunk of that to pay for assistants (say 60k).

The firm is still left with around 350k for equity shares.

Obviously these numbers are rough estimates and the leftover amount should be much higher.

But I’ve heard more and more recently that firms don’t like first years because they “lose money” on them.

They definitely don't "lose money" on them but the 1900 hours you based your estimate on is a reach since some of the time billed will be written off and some of the time will likely be spent on non-billable matters. So, let's just assume 1900 hours worked but only 950 hours billed. Using your same estimate of $350/hr--that's $332,500. After salary, summer bonus, and end of year bonus, that leaves ~$123k. I'd imagine $20k for benefits, $15k for your assistant-share (we have 1 assistant assigned to several attorneys), $20k for office space, $10k for random fringe benefits and they're left with just about $60k. But, at least at my firm, first years are billed out at much more than $350 an hour. I want to say it's ~$500/hour.

[Anonymous User]

I’ve always been told that firms lose money in first years.

Let’s say the firm bills out a first year associate at 350 (to be conservative) and the associate bills 1900 hours, that’s 665,000.

After salary and bonus for the associate, the firm is left with ~450,000. I know the firm has to subsidize benefits and stuff, which I’d assume is around 20,000. Then rent for the office is probably $20,000 for the year. That leaves 410,000. Take a chunk of that to pay for assistants (say 60k).

The firm is still left with around 350k for equity shares.

Obviously these numbers are rough estimates and the leftover amount should be much higher.

But I’ve heard more and more recently that firms don’t like first years because they “lose money” on them.

They definitely don't "lose money" on them but the 1900 hours you based your estimate on is a reach since some of the time billed will be written off and some of the time will likely be spent on non-billable matters. So, let's just assume 1900 hours worked but only 950 hours billed. Using your same estimate of $350/hr--that's $332,500. After salary, summer bonus, and end of year bonus, that leaves ~$123k. I'd imagine $20k for benefits, $15k for your assistant-share (we have 1 assistant assigned to several attorneys), $20k for office space, $10k for random fringe benefits and they're left with just about $60k. But, at least at my firm, first years are billed out at much more than $350 an hour. I want to say it's ~$500/hour.

Plus factor in any moving costs for starting the job, bar stipend, etc.

Also, factor in that most first years also received all of the summer program benefits last year, so firms are still trying to recoup those costs, because most summer associate time gets completely written off, so SAs bring in $0, but take home around $30k+ and then the cost of all of the events and stuff.

[worklifewhat]

I’ve always been told that firms lose money in first years.

Let’s say the firm bills out a first year associate at 350 (to be conservative) and the associate bills 1900 hours, that’s 665,000.

After salary and bonus for the associate, the firm is left with ~450,000. I know the firm has to subsidize benefits and stuff, which I’d assume is around 20,000. Then rent for the office is probably $20,000 for the year. That leaves 410,000. Take a chunk of that to pay for assistants (say 60k).

The firm is still left with around 350k for equity shares.

Obviously these numbers are rough estimates and the leftover amount should be much higher.

But I’ve heard more and more recently that firms don’t like first years because they “lose money” on them.

They definitely don't "lose money" on them but the 1900 hours you based your estimate on is a reach since some of the time billed will be written off and some of the time will likely be spent on non-billable matters. So, let's just assume 1900 hours worked but only 950 hours billed. Using your same estimate of $350/hr--that's $332,500. After salary, summer bonus, and end of year bonus, that leaves ~$123k. I'd imagine $20k for benefits, $15k for your assistant-share (we have 1 assistant assigned to several attorneys), $20k for office space, $10k for random fringe benefits and they're left with just about $60k. But, at least at my firm, first years are billed out at much more than $350 an hour. I want to say it's ~$500/hour.

Plus factor in any moving costs for starting the job, bar stipend, etc.

Also, factor in that most first years also received all of the summer program benefits last year, so firms are still trying to recoup those costs, because most summer associate time gets completely written off, so SAs bring in $0, but take home around $30k+ and then the cost of all of the events and stuff.

Excellent point. Forgot about bar stipend, bar prep, moving, etc., which is another $25k right there.

[2013]

Alright. Everything is making more sense now.

And yeah, 350 was just to be conservative. I think most firms are around 400-600 now