While many lawyers get into law because of a passion for it, being a lawyer is still an occupation. The profit margin for law firms can vary wildly, but very little of the profit margin for law firms hinges on the lawyer’s or partners’ passion or skill. Most of the variability in profit margins has to do with business strategy, marketing, and efficiency.
Read our guide on the ideal profit margin for law firms. Learn how to calculate your law firm’s profit margin and the benefits of financial planning for your law firm.
What is the Ideal Profit Margin for Law Firms?
Are you aware of the ideal profit margin for law firms, or are you focusing on doing your best every day and might be overlooking this vital indicator of a successful business?
The ideal profit margin for law firms can vary widely, depending on their location and size. Interestingly, smaller firms in rural areas often achieve higher profit margins due to their lower overhead costs. Generally, the ideal profit margin for law firms should be 30 percent or higher.
How to Calculate TheProfit Margin for Your Law Firm
As you know, your net profit is the income that your law firm gets to keep after you’ve paid for all expenses, including office supplies, employee expenses, rent, utilities, advertising, insurance, and every other expense that you pay into your business. Your profit margin is the percentage of your total income that is a net profit.
To calculate your profit margin, you divide your net profit by your total revenue and multiply it by 100:
Net Profit / Total Revenue * 100 = Profit Margin
Put another way:
(Total Money Taken In – Total Money Paid Out) / Total Money Taken In * 100
If your business brings in $1,000,000 in total revenue and has $800,000 in expenses, your calculations would look like this:
(1,000,000 – 800,000) / 1,000,000 * 100 = 20
Your profit margin is 20 percent.
You want to shoot for a profit margin in excess of 30 percent. So, it’d be time to get to work on growing that profit margin if your profit margin were that low!
Even if your profit margin is higher than 30 percent, you can shoot for much higher. You might just need a little help!
How To Increase the Profit Margin for Your Law Firm
To grow your profit margin, you can either cut expenses, increase income or both. We can help you create a business plan to skyrocket your profit margin by both helping you eliminate expenses and increase your revenue.
To increase a law firm’s profit margin, the goal should be automating as many administrative tasks as possible and outsource the rest. You should focus on your clients and your billable hours as much as possible.
Cutting Expenses
There are plenty of places where a law firm can cut expenses, but you don’t want to cut expenses at the risk of damaging the functionality of your business. The best way to reduce costs is to work on efficiency.
LT Global helps law firms increase their efficiency. We can help you:
- Reduce the expenses of full-time employees with fully-trained staff that can handle your administrative tasks remotely.
- Reduce data entry time with MyCase case management software—we will teach you how to use it and help you get it personalized to your needs.
Increasing Revenue
To increase revenue, you have a few options:
- Fine tune your firm’s marketing strategy to be focused on ROI and lead generation.
- Increase your hourly rate.
- Streamline your client intake with modern technology so you can more efficiently take on new clients without lifting a finger.
- Eliminate busy work, so you have more time for billable hours.
We can help you with all of this and more. We have proven strategies for increasing revenue. In addition to giving you the tools, resources, ideas and workforce you need to increase revenue, we can advise you on a number of law firm management solutions. Such as financial planning.
How Financial Planning Can Achieve the Ideal Profit Margin for Law Firms
The first step is understanding what is affecting your firm’s profit margin. Finances and accounting are among the most challenging aspects of managing a small company. Yet, they are among the most crucial.
We help identify areas where a company needs to exercise monetary restraint, assist with payroll setup, and provide tax assistance.
LT Global provides personalized one-on-one business planning and execution services. At a consultation, we’ll assess your business’s financial health and identify areas with the potential for the strongest positive impact.
Increase Your Law Firm's Profit Margin with LT Global Practice Management
Whether you have a small firm in a rural area with a great profit margin or a large firm in a metropolis with a ton of overhead — we can help your increase your existing profit margin.
If your law firm needs a modern, efficient case management system, outsourced skilled workers, dynamic marketing, or rebranding, LT Global can help. Request a strategy session today!
