Revenue is Sexy, but Profit Pays the Bills: The Law Firm Profit Margin Formula

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 = .75

Second, 1 – .75 = .25

Third, .25 x 100% = 25% 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.