It amazes me how high the operating costs are at mid-size and big firms and how low the profit margins. As I reflect on my experiences with mid-size and big firms I can see why. On average, for every two attorneys there is one secretary and one paralegal plus a number of runners, file clerks, and receptionists. There are huge and incredibly versatile state of the art copiers and computers. The offices are plush so as to impart the appearance of wealth and status to clients. And, large amounts of money go for marketing.
These arrangments work well as long as the attorneys are churning out 8 or more billable hours a day – it does not matter if the work needed to be done or not. This is not quite as hard as it appears since one partner at a firm told me that he started out working 10 hours a day to bill 8 but now he could work 8 hours and bill 10.
This is called “value billing” and it is not only tolerated but expected in the insurance defense industry. One would spend 2 hours creating a motion for one client. When a similar issue would arise, that motion would be revised in about 45 minutes but the 2 hours would still be billed (the motion had a value of 2 hours). In exchange, the attorney bills his time at a lower hourly rate. Exactly how this saves money remains a mystery but I suppose the hourly rate draws more attention than the number of hours.
On the plaintiff side, contingencies of 40% or 45% are now standard with the fees and expenses coming out of the plaintiff’s award after the contingency is paid. I just wonder how many plaintiffs would pursue their claim if they knew they would end up with barely more than they started with after liens are satisfied.
A small firm can do the same or better quality of work. This is because we can keep those operating costs to a bare minimum. This frees us up to focus on the quality of the product rather than churning out hours for the sake of meeting some annual requirment. We can bill for only the work we actually do and we can set more reasonable contingency fees. Personally, I prefer starting with a low percentage for any settlement prior to filing a petition and graduate to a more traditional percentage if it goes to trial.
Lastly, we do not have to spend a fortune on marketing because the quality of work leaves clients confident to recommend us to others.