I’m working with a firm grossing $750,000 per year in revenue (that’s $62,500 per month). It’s a family law practice.
The firm has 10 employees. That works out to $75,000 in revenue per employee. That’s not good enough. In fact, that’s a seriously poor number.
What Is a Good Number?
You may have no idea what amount represents a good number for revenue per employee. It’s not your fault. Good metrics are hard to come by. We’re not exactly in an open, generous profession when it comes to sharing economic data. I wish the practice management advisors at bar associations made it their business to get us metrics.
The owner of the 10-employee firm explains that he pays an average of $40,000 per year, per employee. He thinks he’s making $35,000 per year, per employee. He feels pretty good about his numbers.
This lawyer is taking home about $110,000 per year out of the practice: $750,000 less the payroll of $400,000 leaves $350,000. Other expenses (marketing, rent, insurance, etc.) account for another $240,000.
This lawyer deserves to make more than $110,000 on $750,000 in revenue. He’s billing time in the firm, managing a bunch of employees, and making less than he could working for someone else. Something is out of whack, and it’s the revenue per employee number. That number needs fixing.
How to Maximize Revenue Per Employee
At $750,000, he should have between two and seven people working in the firm (including himself). That would give him revenue per employee of between $107,000 and $375,000. The high end of that range requires experience, automation, and outsourcing. I’m working with one firm now that’s right at the top of that range.
Revenue per employee should always exceed $100,000. Ideally, it will exceed $200,000. This is a metric you want to focus on and push ever higher. When the number dips, you—like the guy I’m helping—have got a problem that needs fixing.
How did this guy get into this mess? What can he do to correct the situation? We’ll figure that out tomorrow.