Law firm overhead typically eats 45-50% of revenue. Wages and turnover are the biggest costs, so clear career paths help retention. Audit software subscriptions, consider virtual paralegals instead of in-house staff, and benchmark your expenses against similar local firms.
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We're at that time of the year that you're reviewing all your records for the year and kind of look over to see if everything looks good. You might be looking at that bottom line and you're probably saying to yourself, how can I do better? Where can I optimize my law firm profitability? Well, that's what this video is about. And I think managing your overhead is really critical for maintaining profitability. And it's also important to identify what your spend is on what you're spending and what are the primary contributors to any high number or figure that you're seeing for overhead. So let's start here, just understanding what typical overhead is in a firm and maybe where you might be able to find a way to get it to be a little bit lower. One of the largest expenses in a law firm is— with the overhead— is your wages. You might be expanding and hiring and It's possible that you had some turnover in staff. Anytime you have staff turnover, there's a percentage as an expense aligned with it, whether it's training the new person, getting the headhunter to find that new person. There's a lot of expenses there. Other expenses you might wanna look at, and that's one actually, if I dial that back a little bit, that's one that you should be able to look at who you have working for you and determine whether or not these are people that you want to have stay. And if they are, look at how you can keep them in their position. And one of the things I find with talking to various staff with law firms is they need to know what their path is in the business. And nobody wants to stay stagnant. They want to know where their position is, who their next— who their higher-up is, where their path may be to becoming better and maybe getting more money. So that's something you might want to look into, an organizational chart. for example, it can be really helpful. I mean, you might not have that, but it's a good thing to really think about. Now, getting to the other expenses, you probably have office rent. You might have other admin expenditures. It's really important to strategically analyze what you're spending on. Software is another big category that we see a lot of, and it might be time to really do that software review. Look at what you're spending, look at what you're using, looking at whether or not what you're paying for, for that software is actually efficient in doing what you need it to do. Maybe there's something new, latest and greatest out there that you might wanna switch to, but know that there's a cost involved in switching. So that's another place. Obviously utilities, you're kind of stuck with what that is. That could be lighting and heating. Office supplies always is something there. It's— we tend to have a lower office supply category now, than we have had in years past, partially because a lot of firms are working with hybrid models, so they don't have as many people working in office all the time. They kind of work in office and then work from home, but you might still have to be supplying them with paper if you're a paper-centric office. And obviously that would also include any stationery, printing items, bathroom supplies. Those are just part of overhead. It's kind of a hard category to cut. You might see some variances in what you're spending on a paralegal. Maybe you can go with a virtual one that would be less than in-house, but in-house is really important because maybe if you have people working on staff in the office, it's good to have that one-on-one relationship with the paralegal. But it's definitely someplace that you can hire if you're in need of one. You can hire a virtual assist paralegal and they will help you just as well as somebody sitting in the office. And then they tend to be a subcontractor. You're not paying for all the benefits and all that. It's inside of their receptionists, research personnel, admin assistants, anybody like that. And if you're a bigger firm, you might be paying for security personnel as well if you're in a city. And those are expenditures that you want to take a look at and then kind of analyze that and decide what you're doing this year in 2024. What do you think you're gonna spend this year? This year? Where can you cut? And really try to benchmark your firm's expenses with other firms that are nearby, other firms that are similar to yours, to see if you're in line with the same spend as other, other law firms. You want to see if you're really looking at apples to apples, and are you kind of in line with what you see up the street, especially when it comes to wages. You really want to know with wages with staff if you're in the same ballpark as everybody else. And that comes down to data analysis and really looking at these items and having somebody that you know and trust take care of these things for you. Obviously, it's something that a good accounting firm can do for you, but it's something you want to look at. Data says that it's about a 45 to 50% cost on overhead, including the wages. So you want to look at that as your figure as an average, but really it can vary by practice area. It can vary by staff size. Right. Most— for the most part. So you want to look at that too. Hope that's helpful. If you want to learn more, just stay with us and subscribe, and we'll talk to you all next month. Bye now. Bye.
