I’m staggered by the number of lawyers who tell me they want to stop practicing law and start acting as the owner of their firm.
These lawyers want to stop working “in” the practice and start working “on” the practice.
They’d like to play the role of owner rather than employee, and they want to build a business that runs without their direct, daily involvement with client work.
I can totally relate to that desire. I support achieving that objective for those who prefer it to actively working with clients. It’s a choice, and it works for some lawyers.
Be aware, however, that it won’t work for you if you’re not realistic about the numbers.
The In vs. On Calculation
You need revenue coming in before you can stop doing one job (practicing law) and start doing another job (running the firm).
And when I say “revenue,” I mean “REVENUE.”
Let’s do some back-of-the-envelope calculations:
Let’s say you want to earn $200,000 per year as the owner (you can simply do the multiplication if you want/need more money for your lifestyle, e.g., 2X for $400,000, 10X for $2 million).
My rough estimate/guideline of law firm expenses is that payroll runs at 45% of revenue, marketing at a maximum of 15%, and “other” at 25%. Marketing is the expense with the most flexibility and could be dramatically lower than my budget if you’ve got a strong reputation.
Using my rough numbers, you’re left with 15% as profit.
Earning $200,000 in profit requires revenue of $1,333,334 per year. If we multiply it by 10, you’ll calculate that earning $2 million in profit requires revenue of just over $13 million.
So, a lawyer who’s taking home $200,000 working “in” the business needs to bring in revenue of $1.3 million working “on” the business.
You getting this?
The lawyer taking home $200,000 is grossing $400,000 working “in” the business. She’s going to need to multiply that number by three to end up in the same place as she started.
Disclaimer: Of course, these are rough numbers and will vary depending on how the revenue is spent. We’ve been very successful at driving down expenses with some incredibly efficient marketing approaches. They also vary a bit depending on the depth of the management layer between you and your team.
First, Grow Your Marketing Machine
So, just to be clear:
Using my rough numbers, the lawyer who’s now working “in” the business and wants to shift to working “on” the business will likely need to move the revenue up from $400,000 to about $1.3 million to keep earning the same income.
If that lawyer wants to work “on” the business because she believes she’ll be happier and able to earn even more than she’s presently earning, then she’s going to need to do some serious marketing.
Her marketing efforts will need to generate $2.6 million for her to earn $400,000.
Getting it now?
In the interim, as she moves her revenue up from $400,000 to $2.6 million, she can supplement her income by working “in” the business and take a salary for that effort instead of paying someone else.
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But, hey, won’t that put her right back where we started?
Yep.
She’ll be handling client matters and complaining about not having time to work “on” the business.
If this were easy, everyone would be doing it.
This is tricky, complicated, and exhausting.
If you’re asking me how you can build a business that runs itself and your revenue is still under $1 million dollars per year, then you’ve got some revenue growing to do. Unless you’ve got a big pile of capital or are prepared to work for free, then you need to keep juggling multiple hats while you grow your marketing machine.
