Knowing your numbers gives you great power to make smart business decisions. It’s one of the ways you breakthrough to BIG SUCCESS! In my experience, only 5% of solo and small firm attorneys know their profit margin. Do you?

To determine your profit margin, use this formula:

Firm Expenses ÷ Revenue = X.  Then, (1 – X) x 100% = Law Firm Profit Margin

Broken down into steps:

First, Expenses ÷ Revenue = X

Then, second, 1- X = Y

Third, Y x 100% = Law Firm Profit Margin

For Example:

First, $500,000 expenses ÷ $1,000,000 revenue = .5

Second, 1 – .5 = .5

Third, .5 x 100% = 50% profit margin

Another Example:

First, $100,000 expenses ÷ $400,000 revenue = .25

Second, 1 – .25 = .75

Third, .75 x 100% = 75% profit margin

Revenue is sexy, but profit pays the bills.

WARNING: For those of you not yet taking an appropriate W2 salary, you must count a salary equivalent to your contributions as a lawyer and manager as overhead for your profit margin to be accurate.