Parsley
Sage Rosemary & Ginsburg llp
“always a reasonable result for a
reasonable fee, always”
MEMORANDUM
To:
|
All
Partners
|
From:
|
Mike
Marget
|
Date:
|
June
22, 2012
|
Re:
|
FREEDOM
FROM OVERHEAD DAY
– Celebration Time C’mon
|
Although
Hallmark is unlikely to produce any greeting cards, and the occasion will receive
less recognition than National Pi Day,[i] FREEDOM FROM OVERHEAD DAY commemorates
a significant annual event in the financial life of any law firm. It is the calendar date when a law firm has
earned enough money to cover its annual overhead costs. From that date forward, all the cash goes to
the lawyers!
In
its most rudimentary form, a law firm’s revenue can be divided into two pools:
·
Overhead
– occupancy, marketing, equipment, legal research and staff expenses· Lawyer Compensation
Assume
your firm begins working on January 1st and earns the same amount of
money each day while spending nothing.
When the law firm has accumulated enough money to pay all overhead
expenses that will come due during the year, FREEDOM FROM OVERHEAD DAY has
arrived.
According
to a survey published last year, 47.4% of the average small firm’s revenue goes
to paying overhead costs and the balance constitutes partner and associate
compensation.[ii] FREEDOM FROM OVERHEAD DAY is calculated by
comparing the relative law firm revenue and overhead costs as reported by the
survey and applying those figures to the 366 days in calendar year 2012. The breakdown works as follows:
Overhead
Element
|
%
of Revenue
|
#
Days
|
Dates
Covered
|
Occupancy
Costs
|
6.8%
|
25
|
January
1 - 25
|
Marketing
Costs
|
2.4%
|
9
|
Jan
26 – Feb 3
|
Equipment
Expenses
|
2.1%
|
8
|
February
4 – 11
|
Library
& Reference
|
1.5%
|
5
|
February
12 – 16
|
Other
Overhead
|
16.7%
|
62
|
Feb
17 – April 17
|
Staff
Salaries/Benefits
|
17.9%
|
66
|
April
18 – June 22
|
Total
Overhead
|
47.4%
|
175
|
June
23 is the 176th day of calendar year 2012. In theory, June 23rd is FREEDOM
FROM OVERHEAD DAY and it’s all profit for the lawyers from here on out. Be sure
to celebrate (and spend) responsibly.
[i] National Pi Day (or π Day) is celebrated by math enthusiasts around the world each year on March 14th (which can be abbreviated as 3.14 and Pi = 3.1415926535…). Coincidentally, March 14th also marks the birthdate of Albert Einstein. I’m told Pi Day is a big deal at Princeton.
[ii] “Small Law Firm Economic Survey,” 2011 Edition, published by The National Law Journal and ALM Legal
Intelligence (2011). This survey focuses
on the economics of firms with 20 or fewer lawyers.
