Some of us grew up in the 70s, captivated by the heroic adventures of The Six Million Dollar Man, when a million dollars was an amazingly large amount of money – unattainable for most. Now we scoff at a million, knowing it’s not enough for retirement and successful attorneys don’t pull in a million dollars over their lifetime; they pull in a million dollars in one year. Even solo and small firm practitioners are generating a million dollars of revenue.
If you’re thinking, “BS! Only big firms make over a million dollars,” you’re mistaken. It’s completely doable. It’s a lot easier these days and you don’t create a million by yourself. It takes knowing your numbers, a team, a guide, the proper mindset, and the million dollar law firm formula.
Why is a Million Dollar Law Firm Not a Big Deal?
Don’t get me wrong; a million dollar law firm is a very big deal. It’s also highly attainable. Other solo and small firm practitioners have million dollar law firms. If they can do it, you can do it too; just follow the formula.
Here’s why a million dollar law firm is doable for you:
- You now have the knowledge that other attorneys are doing it. Just like breaking the 4- minute mile, once any seemingly impossible achievement has been grasped, others follow because they know it can be done.
- You have the Internet to get your message out to the world, conduct research, provide efficient services, store information including client files, learn, and communicate – all in a flash. The financial investment is shockingly low and the ROI is high.
- You also have software, empowering you to get done in minutes that which used to take hours or days – maybe even weeks. Picture this: it’s 1975 and instead of watching Steve Austin stop the bad guys, you’re typing an 80-page trust or a 15-page contract on a typewriter. How long would that take you? Today, it takes 20 minutes to draft that 80-page trust, even with customizations.
- The legal community is finally coming to understand that law is a business, not just a profession where clients fall out of the sky holding big checks scrambling to get to our office door as soon as the shingle is hung. Law is a business that needs to be run like a business.
- You also have access to law business strategy coaches to cut through the mystique of success and create a clear path, helping you to think entrepreneurially, increase revenues, and create the law firm/life you want.
Building a million dollar law firm is simple. It’s not easy, but it is simple. There’s a significant difference between the two. Your path to a million dollar law firm won’t be easy, but it will be worth it – and you’ll love who you become along the way.
How to Identify Your Destination
We’ve been focused on a million dollar firm, but that’s not everyone’s goal. Let’s start with how much it costs to live the life you want. This isn’t the amount you need to scrape by, the amount you need to avoid going hungry or falling into bankruptcy. And, it likely isn’t where you are now or what’s “good enough.” Let’s figure out the number that creates the funds to put you where you want to be, living the life you want to live.
Some lawyers want big houses in exclusive neighborhoods, some want to live on a boat in the Caribbean, some want to live in an RV and travel the country, some want a condo here and a condo there, some want a row home in the historic district, and some want to live in a 1950’s ranch with a picket fence in the burbs. You get to choose the life you want. You get to pick what you create.
I don’t care what you want; I just care that you really want it because that’s what will keep you going on those days when OC is being a butt-face, your associate quit and is taking clients, or you took on a vampire soul-sucking client even though you knew you shouldn’t. When you have those days, and we all do, you’ll need to focus on what you’re creating and why. Otherwise, you won’t reach your goal; instead, you’ll get distracted binge-watching The Bionic Woman or give it all up to paint faces at the beach.
Envision in your mind what you want. Then, using this checklist, jot down what it’s going to take to get you there. Where are you now? Where do you want to be in 1 year, 3 years, 5 years, and beyond?
WARNING: Don’t hold back here because your numbers aren’t perfect; perfect is the enemy of both success and getting anything done.
|Annually||Today||1 Year||3 Years||5 Years|
|Mortgage Payment(s), Rent|
|Real EstateTaxes and Home Maintenance|
|Consumer Debt and Other Loans|
|Insurances:Homeowners, Renters, Life, Disability, Auto, Umbrella|
|Food, Toiletries, and Household Supplies|
|Services (Household, Lawn, Child Care, Pet, Professional)|
|Medical and Vet|
|Now||1 Year||3 Years||5 Years|
*If you don’t know what you’ll pay in taxes specifically, that’s okay. For purposes of your law firm roadmap, go with a 33% tax to cover income taxes. It’s a rough estimation, but that’s okay. Your tax advisor will be able to give you specifics. For now, just get ‘er done.
Bunny Trail Alert: Personal and Professional Goals
Be sure to analyze and document your personal and professional goals such as how much time you want off, where you want to live and vacation, who you want to be with, how you want to be spending your days, your ideal schedule, hobbies that make you happy, professional certifications, books or articles published, specific recognition, etc.
In this monthly column, we focus on the numbers of a successful law firm, but the life you want to create is where it all starts. Numbers are not everything. Numbers are a measure of success and numbers let you know what you’re doing right and where you need to adjust. We always need to know the numbers to get you to the life you want – your personal and professionals goals are the life you want.
Revenue is Sexy; Net Pays Tuition
Many attorneys say they want to create a million dollar law firm because it’s a big outrageous gorgeous goal. Know that when another attorney waves the million dollar flag, they’re talking revenue. If you hear someone say they have a million dollar law firm, it means their gross revenue has hit seven figures. It does not mean that they’re taking home a million dollars.
Revenue is super sexy and we all love to talk about it. But keep in mind what pays college tuition, the trip to Yosemite, and the mortgage is net.
Let’s focus in on net for a bit. Net is the benefit that you as the owner pull out of the firm. After all, if you have a million dollar law firm and that entire million dollars goes to run that firm, you’re spinning on a hamster wheel. All you own is your job; you don’t own a business. Businesses exist to create a profit.
This may surprise you. If you want $250,000, your firm needs a million in revenues. Though profit margin varies, especially at the extreme ends of the revenue spectrum, a 25% profit margin is typical.
- If you want to create $100,000 annually to live the life you want, then your law firm will needs to create $400,000 in revenue.
- If you want to bring home $500,000 each year, then your law firm will need to create $2 million in revenue.
How Many Clients Does a Million Dollar Law Firm Need?
We started with how much it costs to live the life you want and we know that a 25% profit margin is typical. Now, let’s take a look at how many clients/matters you need to create a million dollar law firm.
Each of these will create a million in revenue:
- 1,000 clients/matters at $1,000
- 500 clients/matters at $2,000
- 250 clients/matters at $4,000
- 200 clients/matters at $5,000
- 125 clients/matters at $8,000
- 63 clients/matters at $16,000
I’ll use a trust and estates firm for example:
- If your trust-based package is $5,000, then you need to close an average 4 clients a week for 50 weeks to create a million dollars.
- If you do that same trust-based package plus a business entity or a standalone retirement trust for $8,000 total, then you need only 2.5 clients a week for those same 50 weeks.
- If your nursing home qualification plans or probates are $12,000, then you need 2 clients per week (50 weeks) to reach $1,000,000.
The Million Dollar Law Firm Formula
Here’s what I’ve been promising from the beginning. You can figure out how to get from where you are to where you want to be with this formula.
Annual Owner Benefit Desired x 4 = Annual Revenue Required ÷ Matter Fee ÷ Number of Weeks Working = Number of Clients You Need Each Week
- Example: $250,000 x 4 = $1,000,000 ÷ $5,000 ÷ 50 = 4 clients/week
$250,000 (owner benefit) x 4 (25% profit margin) = $1,000,000 (total law firm revenue) ÷ $5,000 (average fee) ÷ 50 (weeks) = 4 clients/week
- Example: $125,000 x 4 = $500,000 ÷ $10,000 ÷ 46 = 1 client/week
$125,000 (owner benefit) x 4 (25% profit margin) = $500,000 (total law firm revenue) ÷ $10,000 (average fee) ÷ 46 (weeks) = 1 client/week
When you work with this formula, you can plug in any tweaks you’d like to make to get the results you want. Customize it! This is about identifying the life you want and using this formula to map out the way to get there.
- Want to work fewer weeks? Change out the 50 weeks for 46, 45, or 42 weeks.
- Want to take home a different amount? Change out the $1 million for 4 x the owner benefit you want to create.
- Your fees in a different place? Enter your own fee into the formula.
- Some matters at $X and other matters at $Y? Of course. Use the average or run the numbers for each type of matter to determine how many X matters and how many Y matters you need.
Even small tweaks in the formula and firm can have significant results. Attorneys are often shocked to see that they need just 1 or 2 more clients a week to reach their goals. When you know the numbers, it all feels more doable.
Want to know how even higher fees would affect your numbers? Plug in higher fees. Want to test how taking off the month of August each year would affect the firm, plug in 4 fewer weeks. Want to increase revenue? Plug in the increased revenue and see what it would take to get there. Want to increase your owner benefit to cover the costs of another week in Yosemite or the complete set of The Six Million Dollar Man episodes on DVD? Add those dollars to owner benefit desired to create the life and the firm you want.
All opinions, advice, and experiences of guest bloggers/columnists are those of the author and do not necessarily reflect the opinions, practices or experiences of Solo Practice University®.