80-20 lives: Only 20% of hours worked by solo and small firm practitioners results in money in the bank

It looks worse than I thought for the economics of small firm practitioners.

John Mayer, Executive Director of CALI and developer of A2J software available to courts, legal aid organizations and others to develop user-friendly interfaces for self-represented litigants, has pointed me to a report released recently by CLIO, provider of practice-management software for smaller firms.  The data are drawn from actual billing by 40,000 paid-users of CLIO’s software.  These are solo and small firms (12 or fewer lawyers). On average they are younger/less experienced lawyers than is true of the profession as a whole–still a third of the lawyers in the sample have more than 15 years experience.  Around 40% work from an office, 30% from home, remainder in communal or “other” locations.  Somewhat more women than ABA averages: 41% (2015) versus 36% (2005).

The report provides concrete data on that elusive number:  average billing rates.  This sample shows nationwide average of $232, ranging from a high of $281 in DC to a low of $129 in Iowa.  Highest rates for these small practitioners is in bankruptcy, tax, corporate and real estate ($260-$275); lowest is in criminal ($148), insurance ($200) and family ($202).  Since I usually use $200 as my ballpark figure for small firm practitioners, particularly when talking about access to justice, it’s not a bad assumption (although these data allow a more nuanced back-of-the-envelope calculation–if there is such a thing–by state and practice area).

The really stunning news is CLIO’s identification of a devastating funnel for small law firm economics.  Their data show that on average lawyers in this sample only engage in billable work 2.2 hours a day.  That’s about a quarter of a regular 8-hour work day.  Granted, some of the folks in this sample may only want to work part-time, but that’s still a pretty staggering figure–even the half-timers are only doing billable work half the time.

It gets worse.  Of those 2.2 hours spent on billable work, only 1.8 is actually billed to a client–nearly 20% is written off before the bills are assembled.  Then:  only about 85% of billed hours are actually collected.  (This figure is consistent with data from larger corporate law firms.)  That equates to collecting on 1.5 hours a day.

For lawyers aspiring to full-time practice (8 hours a day) that means they are actually bringing in money for only 20% of the hours they work.

This speaks volumes about the inefficiency of small law firm practice.

 

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