Recently, I was leading a business strategy discussion in a group of solo and small firm attorneys. I asked the question, who knows your profit margin? Only about 10% of the attorneys raised their hands, which, of course, means that 90% of attorneys did not know their profit margin.
Profit margin is one of those key performance indicators (KPIs) you need to know so you can gauge progress and make smart business decisions based on fact, not guesses. I once went through this process with a new client and her profit margin was zero. Zero. She was shocked.
How to Determine Your Profit Margin
1. Your Annual Expenses (“Nut”) / Annual Revenue = X
2. 1 – X = Y
3. Y x 100%
Determining Your Law Firm Profit Margin: An Example
1. $75,000/$100,000 = .75
2. 1 – .75 = .25
3. .25 x 100% = 25%
This law firm’s profit margin is 25%.
Profit margins do vary by practice area and where the firm is in the growth cycle. When I’m running examples, I use 25%.
The better the grasp of your profit margin and other KPIs, the more power you have to make your life easier and your law firm more successful.
The power is yours!
P.S. If you’re nodding yes, if you’re ready to go from pain to gain, if you have the vision of building a million-dollar+ law firm but don’t know how to get there, let’s chat about where you are and where you want to go. Set up your Breakthrough Strategy Session here.