Positive revenue is obviously a good sign. But how do you know if your law firm’s revenue is enough to grow and scale your business? And how does your firm’s revenue stack up against the average law firm revenue?
In this blog post, we’ll cover what you need to know about law firm revenue.
You’ll learn the average amount of compensation that attorneys bring in, key factors affecting law firm revenue, and ways you can increase revenue at your firm. Use the guide to help measure your firm’s success, increase its revenue, and set revenue goals more accurately.
What is the average law firm revenue?
The concept of “average law firm revenue” is, by nature, somewhat ambiguous. Your firm’s revenue ultimately depends on your unique situation (more on revenue contributing factors later). However, to gain insight on the average revenue for solo and small law firms, we can look at how these attorneys get compensated.
How much revenue do solo and small law firms make?
According to the 2020 Martindale-Avvo Attorney Compensation Report, the average 2019 compensation for providing billable legal services for a solo law firm was $150,000 per year. This compensation decreased slightly from the previous year, where the average compensation for a solo practitioner was $159,000.
If you’re wondering what the average small law firm revenue potential is, the same report found that lawyers who worked in-house at a small law firm earned an average of $210,000 in 2019.
Of course, the world has seen significant challenges since these studies came out, including rising interest rates and inflation. These challenges may put added pressure on law firm revenues in the coming years. Our 2022 Legal Trends Report found that the rate of inflation is outpacing the Billable Hour Index.
Interestingly, though, when reflecting on revenue in the year ahead, a 2022 State of Small Law Firms Study found that most small firm lawyers had high expectations for their key financial metrics.
Over 60% of small law firm lawyers expected high-to-moderate growth in revenues per lawyer, billable hours, and profits per lawyer. Many also anticipated higher attorney compensation and productivity.
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What affects law firm revenue?
When assessing average law firm revenue, consider factors like practice area, location, client type, and more. While each situation is unique, the following factors and lawyer statistics commonly impact the average law firm revenue:
As a result of factors like cost of living, certain states demand higher rates for attorneys. Higher rates mean that lawyers in certain areas can bring in more revenue than others. For example, the District of Columbia, California, and Massachusetts all have some of the highest annual mean wages for lawyers.
Even within the same region, the potential revenue a law firm can bring in depends heavily on the practice area.
Corporate law firms charge the highest hourly rate at $350 per hour in 2022, according to Statista Research. That’s followed closely by bankruptcy law at $343 per hour and intellectual property law at $342 per hour. Juvenile law firms charge the least at $102 per hour.
A law firm’s client base directly impacts the potential income a lawyer can earn, and the firm’s potential revenue. A firm’s clients could be mainly consumers, businesses, or a combination of the two.
Specifically, according to the Martindale-Avvo Attorney Compensation Report, attorneys focused on providing legal services to consumers earned an average of $181,000 in 2019. However, lawyers serving businesses reported earning an average of $238,000. Lawyers serving both consumers and businesses reported an average income of $175,000 in 2019.
77% of attorneys in the Martindale-Avvo Attorney Compensation Report bill hourly. While hourly billing is the most common structure, other options like fixed-fee billing can make revenue more predictable.
Law firms’ billing structures could be a contributing factor in determining the average revenue for solo law firms, with the Martindale report noting that 60% of solo practitioners use fixed-fee billing. Regardless of how you price your legal services, you want to ensure the cost matches the value you bring to your clients.
How much do the largest law firms earn on average?
According to the 2023 Am Law Report, the largest 100 law firms in the US earned $131 billion in total revenue in 2022, a 2.7% increase from the prior year. But the average revenue per lawyer dropped by 1.9% to $1.16 million.
How much revenue did the top law firm in the US bring in? Kirkland & Ellis topped the list with $6.5 billion in revenue in 2022.
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How you can increase your law firm revenue
If improving your firm’s top-line growth (your firm’s revenue) is a goal for your firm, consider the following strategies:
1. Automate your processes with technology
One of the biggest pain points for law firms is that too much time goes to mundane tasks. In fact, the 2022 State of Small Law Firms study found that 80% of respondents saw the time they spent on administrative tasks as at least a moderate challenge in their firm.
Yet, it doesn’t have to be that way. Automating your law office makes it faster and easier for law firms to take care of non-billable tasks. This way, lawyers can focus more on billable and revenue-generating work. For example, you can use software like Clio Grow to automate your firm’s client intake process.
Treblaw LLC’s Chris Trebatoski can attest to exactly that. Understanding the potential for technology to drive greater efficiency and streamline processes, his firm grew from $250,000 in revenue to a firm that will have $1 million in revenue in just four years.
Data from Clio’s 2022 Legal Trends Report further supports this—showing that firms that use cloud-based legal practice management software were 11% more likely to have strong revenue streams. In addition to enjoying higher profits, they have the resources to invest in new initiatives—further strengthening their competitive edge.
2. Make payments easier by accepting credit cards
It’s simple: The more convenient it is for clients to pay you, the more likely you’ll get paid. The more you get paid, the more revenue you’ll bring in.
But what’s the best way to make it easier for clients to pay you? Accept credit cards and online payments.
According to our 2019 Legal Trends Report, law firms that accept electronic payments get paid faster. In fact, 57% of electronic payments get paid within the same day they are billed and 85% get paid within a week.
3. Track (and optimize) your law firm’s key metrics
Knowledge is power. If you want to increase your law firm’s revenue, you must identify key metrics that show how much your firm is actualizing its revenue potential. Measure how much billable time your firm is tracking, billing, and collecting on. Note and optimize your firm’s:
- Utilization rate: The number of billable hours worked divided by the number of hours in the workday.
- Realization rate: The number of billable hours invoiced divided by the number of billable hours worked.
- Collection rate: The number of hours collected divided by the number of hours invoiced).
So how do these metrics tie in with your law firm’s revenue?
According to the 2022 Legal Trends Report, the average collection rate was 89% in 2021. This statistic means firms don’t collect on 11% of work completed and billed to clients. The average collection rate drops to 87% for solo law firms.
Low collection rates strongly indicate you need to focus on improving your firm’s collections to increase revenue.
Low realization rates indicate that your firm is losing revenue on hours already worked—but unbilled.
Low utilization rates show you need to streamline non-billable work to generate more revenue.
Legal practice management software like Clio allows you to easily track key metrics with revenue reports that generate a detailed overview of unbilled, billed, and collected time and expense activities.
4. Put your clients first
Metrics are important, however, revenue is not just about hard numbers. If you want to increase your firm’s revenue over the long term, you need to prioritize your clients. As this episode of our Matters podcast discusses, client feedback is important.
By regularly collecting, analyzing, then using client feedback to improve your firm’s workflows and find new opportunities, you can grow your firm in a way that works for the people you serve. You’ll also likely enjoy increased revenue.
Law firm revenue vs profit
So we’ve covered ways to increase your law firm’s revenue. But what does that mean for your overall profit?
Your profit is your revenue less any overhead costs. Overhead includes marketing, office and technology costs, salaries, insurance etc.
In most cases, increasing your revenue will subsequently increase your profit.
Final thoughts on law firm revenue
Whether you’re a solo practitioner or you run a law firm with many attorneys, revenue is crucial for your firm to succeed. While the exact figure for average law firm revenue varies depending on many factors affecting your law firm’s revenue, you can still work towards a revenue goal.
Consider factors like your current revenue, comparable attorney revenues and average hourly rates in your state and practice area to help create revenue goals. Then, consider steps you can take to improve your firm’s revenues and meet those goals.
By focusing on revenue and taking steps to improve it over time, you can set your firm up for success, growth, and, ultimately, increased profitability.
Note: The information in this article applies only to US practices. This post is provided for informational purposes only. It does not constitute legal, business, or accounting advice.
How much do law firms make?
The revenue of law firms varies based on a range of factors, including experience, practice area, and geographic location. To estimate your potential revenue, multiply the average hourly rate for your practice area and location by the number of billable hours you anticipate your firm handling.
How do law firms make money?
Law firms generate revenue by billing clients through various payment structures, such as hourly billing, flat fees, contingency fees, and retainers. Many other factors impact law firm profitability, including billing and realization rates, the use of legal technology, and strong client service.
We published this blog post in August 2021. Last updated: .
Categorized in: Accounting