We suffer from a delusion. Nearly all of us have this belief in common. It’s not clear where it started, but it spread like a virus, and we’re all infected.

We believe that bigger is better. We believe that more lawyers equals more profit. We equate adding to our headcount with adding to our bottom line.

It’s simply not true.

A Tale of Two Firms

Let’s look at two firms.

Firm 1

Firm 1 has three lawyers. Each one is billing about $150,000 per year. They have a paralegal billing about $50,000 per year. Gross revenue is $500,000 per year. One of the three lawyers is the owner, and two are associates. The payroll, exclusive of the owner, runs about $160,000 ($40,000 for the paralegal and $60,000 for each of the lawyers). Other expenses including rent, insurance, marketing, etc. run $150,000.

The owner of Firm 1 is taking home $190,000 per year. She’s spending lots of time talking to her three employees in addition to other tasks relating to managing her office.

Firm 2

Firm 2 has one lawyer: the owner. She bills 100 hours per month at $350 per hour. She’s running at a steady five hours per day. Her gross revenue is $420,000 per year. She has one assistant at $50,000 per year. Her other expenses run less than those of Firm 1 since she has reduced requirements for office space, insurance, legal research subscriptions, continuing education, etc. due to having fewer people. Her expenses, excluding payroll, run $110,000 per year.

The owner of Firm 2 is taking home $260,000. She’s spending her time delivering client services. Sure, she’s managing her employee, but it’s far less effort to manage one than to manage three. She’s taking home $70,000 per year more than the owner of Firm 1.

At first glance, who would you have assumed was doing better financially? Who would you rather be? These are questions you need to ask before you let the bigger is better delusion infect your brain.