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? 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 average law firm revenue. We’ll include the average amount of compensation that attorneys bring in, the key factors affecting law firm revenue and ways you can increase revenue at your firm. You can use the guide to help you measure your firm’s success and increase its revenue—and set your firm’s 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 depends on your firm’s unique situation (more on some revenue contributing factors later). However, to gain insight on the average revenue for a solo law firm, we can look at how solo attorneys get compensated.
How much revenue does a small law firm 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 is down 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.
However, when assessing average law firm revenue, you also need to consider the impact of factors like practice area, location, client type, and more.
What affects law firm revenue?
While each situation is unique, the following factors and lawyer statistics commonly impact the average law firm revenue:
Unfortunately, as the Martindale-Avvo Attorney Compensation Report notes, female lawyers receive less compensation than male lawyers. Specifically, female attorneys reported bringing in 35% less income than male counterparts in 2019.
Because of factors like cost of living, certain states demand higher hourly rates for attorneys. Higher rates mean that lawyers in certain areas can bring in more revenue per hour than others. For example, lawyers in New York can charge as much as $485 an hour. However, the highest average hourly rate for a lawyer in Indiana is only $331 an hour.
Even within the same region, the amount of potential revenue a law firm can bring in depends heavily on the practice area. For example, intellectual property law firms—according to average hourly rates reported in the 2020 Legal Trends Report—charge the most at $324 an hour. However, juvenile law firms charge the least at just $87 per hour.
The composition of 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 billing structure, other billing structures 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.
How much do the largest law firms earn on average?
According to the 2021 Am Law 100 Report, the largest law firms in the US earned $111 billion in total revenue in 2020. This number marks an increase of 6.6% from 2019. For this group, the average revenue per lawyer was $1.05 million.
How much revenue did the top law firm in the US bring in? Kirkland & Ellis topped the list with $4.83 billion in gross revenue in 2020.
How you can increase your law firm revenue
If improving your firm’s top-line growth (your firm’s revenues) is a goal for your firm, consider the following strategies:
1. Automate your processes with technology.
Treblaw LLC’s Chris Trebatoski can attest to how his firm grew from $250,000 in revenue to a firm that will have $1 million in revenue in just four years. Chris Trebatoski understands technology that improves efficiency and streamlines processes is a key factor in boosting law firm revenue.
Automating your law office makes it faster and easier for law firms to take care of non-billable work. 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.
Data from the 2020 Legal Trends Report builds on this idea—showing that firms using a combination of legal technology solutions brought in more revenue. Specifically, firms using multiple legal technology solutions—like online payments, client portals, and CRMs—collected $19,541 more revenue per lawyer in 2019. The 2020 Legal Trends Report also projected that lawyers using multiple legal technology software would collect $37,622 more in 2020.
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 keep track of certain key metrics that show how much your firm is actualizing its revenue potential. You should track how much billable time your firm is tracking, billing, and collecting on. Track 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).
How do these metrics tie in with your firm’s revenue? According to the 2020 Legal Trends Report, the average collection rate is just 88%. This statistic means firms don’t collect on 12% of work completed and billed to clients. A low collection rate strongly indicates you need to focus on improving your firm’s collections to increase revenue. Similarly, a low realization rate indicates that your firm is losing revenue on hours already worked—but unbilled. Also, a low utilization rate shows you need to streamline non-billable work to generate more revenue.
4. Put your clients first.
While these metrics are important, however, revenue is not all 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 matters.
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.
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.
We published this blog post in August 2021. Last updated: .
Categorized in: Accounting