Nina Lee

Law firm overhead expenses are a big part of your firm’s profitability, but do you know what your overhead percentage is? Do you know what your overhead costs are, or even what expenses are included in overhead costs?

The first step is understanding your overhead costs, then you can find ways to reduce them to make your firm more profitable. With a clear financial picture, you can keep unnecessary costs down and position your firm for future opportunities.

What Are Overhead Costs?

Overhead costs are the expenses related to running your firm, specifically ongoing costs for general business functions. These are law firm expenses you would still have to pay even if you didn’t produce anything within a period of time, such as rent for office space, accounting, software, insurance, and employee salaries.

Though often used interchangeably, overhead costs are different from operating expenses. Also known as direct costs, operating expenses are the expenses necessary to run your business or costs incurred in your day-to-day operations. These may include marketing expenses, labor costs, and expenses related to production.

According to Law Crossing, the typical law firm spends 45 to 50% of the fee dollar on overhead expenses. Usually, these expenses are non-lawyer salaries or wages, rent, phone, supplies, or library costs.

Types of Overhead Costs at Law Firms

There are several types of overhead costs for law firms:

1. Fixed Overhead

These costs are costs that are the same regardless of time, profits, or activities, such as rent, insurance premiums, loan payments, government fees, or property taxes. These costs will be there whether you’re selling legal services or not.

2. Variable Overhead

These costs are costs that will vary according to your sales volume. Typically, they increase as your sales go up and decrease as they go down, such as office supplies, marketing, and some utilities.

3. Semi-Variable Overhead

These costs are costs that you have to pay regardless of what’s happening in your firm, but the amount can vary based on your activity. Some of these may include hourly wages, most of your utilities, and business vehicle costs.

How to Calculate Overhead Costs at Your Firm

Generally, the lower your overhead, the better your profit margins. However, in order to reduce overhead, you have to know how much your overhead costs you.

First, calculate all of your overhead costs for the month. This may include partner salaries, office rent, internet service, lighting and heating costs, office supplies, and technology subscriptions. Categorize them into fixed, variable, and semi-variable overhead costs.

Then, determine your monthly sales for legal services during that same time period and divide them by your overhead.

(Overhead/Monthly Sales) x 100 = Overhead Percentage

For example, say your law firm has $10,000 in overhead costs in a month and $50,000 in sales. The overhead rate is .2 or 20%, so for every dollar the firm earns, 20 cents is spent on overhead.

If your percentage is high, you may need to adjust your overhead to turn a profit. If it’s low, that’s a good sign. Keep in mind that if your overhead is way too low, it could mean that you’re compromising quality to keep costs down.

Track these calculations over a few months to track changes in your overhead costs. You should be able to identify cost drivers and potential areas for cost reduction with more visibility.

8 Ways to Reduce Overhead Costs for Law Firms

Here are some ways to reduce overhead costs for your law firm without sacrificing quality.

1. Streamline Administrative Processes and Workflows

Administrative processes can create a burden on your law firm that wastes time and money for labor. You can streamline these processes with workflows for billing, scheduling, document preparation, and more, relieving the burden and allowing your staff to focus on more important work.

2. Implement Legal Technology

Legal technology often involves an upfront investment that pays off considerably in better efficiency and productivity. A comprehensive law firm software offers features to streamline lawyer time tracking, law firm invoicing, reporting, client and project management, reporting, and more.

3. Negotiate Contracts with Service Providers

The payment to service providers for technology, accounting, and other work can be a significant part of your overhead costs. Negotiate your service provider contracts to ensure you’re getting the best prices and save money on the services you need to operate your firm.

4. Adopt Remote Work to Consolidate Office Space

Allowing staff to work remotely, either full-time or part-time, helps you optimize your overhead for utilities and supplies. Depending on the schedule you implement, you may be able to reduce your office space to pay lower rent as well. As an added bonus, top talent is seeking out opportunities for remote work, hybrid schedules, and flexibility, giving you an edge in a competitive market.

5. Outsource Non-Core Functions or Tasks

There’s plenty that can be outsourced at a law firm without compromising your core competencies, such as receptionist duties or document preparation. Outsourcing this work helps you save money and frees your staff to focus on mission-critical tasks.

6. Implement Paperless or Digital Document Management Systems

Going paperless is a great way to reduce costs related to physical paper, printing, mailing, and labor costs to have staff handle all these tasks. With document management software and invoicing technology, you can access all the information you need efficiently from anywhere with an internet connection, saving you a lot of time and resources spent on manual processes.

7. Evaluate and Optimize Marketing Spend

Law firms need strong marketing, and that takes money. However, you should be strategic in your approach to marketing, only allocating resources towards tactics that generate a high return on investment for your firm.  

8. Conduct Regular Reviews of Expenses and Identify Cost-Saving Opportunities

Staying ahead of your finances and expenses is the best way to continually optimize and stay profitable. Review your expenses and financial standing regularly to determine your overhead percentage and find ways to reduce costs.

Final Thoughts on Reducing Overhead Costs at Your Firm

Reducing overhead costs is vital for maximizing profitability at your law firm. With simple changes like adopting cloud-based technology, optimizing your marketing spend, or outsourcing administrative tasks, your firm can effectively lower overhead.

Legal work should center on serving clients, not drowning in administrative tasks. Balancing the books, managing calendars, and answering calls often cut into your day, leaving less time for billable hours. The weight of these tasks is so heavy that many small firm lawyers count it as one of their biggest hurdles. Plus, the surge in workload over the past year has only added to the stress, even impacting staff retention.

Balancing billable and non-billable hours can be challenging. Some non-billable hours are inevitable, like attending professional networking events or participating in continuing legal education. However, there are some non-billable tasks that you can reduce, automate, or outsource.

Effective Strategies to Minimize Legal Administrative Tasks

1. Accurate Time Tracking

Accurate time tracking is essential to ensure you bill for all the hours you work on a case. Relying on paper notes or Excel spreadsheets is not efficient and often leads to errors or missed entries. A practice management system with built-in timers, like Bill4Time, allows you to easily record time, even when you switch between tasks throughout your busy day.

Additionally, features like Google Calendar integration further streamline this process, enabling you to create time entries directly from already existing calendar events. This integration improves accuracy and reduces the need for duplicative efforts, making time tracking seamless and reliable.

2. Outsourcing

The obvious way to reduce administrative time for lawyers is by outsourcing administrative work. Most large law firms have an extensive support staff to help with these tasks, but the extra expense can be a challenge for small firms.

If the budget is tight, law firms can hire as-needed help, such as a virtual paralegal or part-time support staff, to address administrative needs. Contractors help with tasks like bookkeeping, marketing, web development, or fielding phone calls without adding a full-time position.

3. Delegating Responsibilities

Effective delegation is vital for alleviating some of your administrative burdens. Focus on the tasks that only you can perform, such as complex case research or high-stakes client consultations. Other responsibilities, like routine document preparation or initial client intake, can be assigned to capable team members.

Clear prioritization and delegation strategies are essential for maintaining productivity and ensuring that your firm operates smoothly. By delegating appropriately, you can ensure that all tasks are completed efficiently without overloading any single team member.

4. Implementing Better Organization

File maintenance and organization are critical to a smoothly running law firm. Lost files and misplaced documents not only waste precious time but can lead to malpractice suits. Also, if your clients are evaluating your capability based on your organization, a messy desk or frantic search for files can leave a bad impression.

The best way to stay organized is with digital tools. Searching for documents stored online is a matter of a quick toolbar search rather than hours spent rifling through paperwork. Bill4Time, for example, offers a cloud-based document management solution that provides lawyers with security and confidentiality, along with an efficient organizational system that makes accessing documents more convenient.

5. Utilizing Practice Management Software

Practice management software is a great way to reduce legal administrative tasks. They offer automation specifically designed for law firms and legal professionals. In addition to timekeeping, practice management systems can automate and streamline administrative tasks like maintaining client records, case matters, billing, emails, and more.

Furthermore, some practice management software uses cloud-based operating systems, so you can access any information within the system at any time from any device with an internet connection. Whether you’re in a taxi, waiting for a client at the courthouse, or meeting a client for lunch, practice management systems provide the tools you need to stay organized and productive.

Reduce Legal Administrative Tasks with Legal Technology

Non-billable hours and administrative tasks are part of doing business at a law firm, but lawyers can take numerous steps to reduce the administrative burden and focus on billable tasks. One of the best ways is with digital practice management systems, which track time and automate tasks like billing and time tracking. With solutions from Bill4Time, law firms can become more productive, efficient, and profitable with automated processes designed to cater to the needs of legal professionals.

Want to see how Bill4Time can reduce admin tasks at your firm? Let us show you in a demo — sign up here!

Drawing loyal clients to your law firm involves more than offering top-notch legal services. It starts with understanding your clients’ needs and demonstrating how your expertise can help them. Whether you’re a corporate attorney, a family lawyer, or handle criminal cases, showing that you care about your clients’ broader needs makes a big difference. Building trust and providing clear, practical advice keeps clients coming back. Here are three effective ways to build strong, lasting relationships with your clients.

1. Reshape the conversation

Your first task is to assess your client’s needs and explain what you can do for them. Always outline the scope of work clearly, whether the news is good or bad. During this conversation, listen carefully to your client. You might find that they need more services than they initially thought.

Don’t sound like a salesperson when suggesting additional services. Explain why these services are beneficial and how your expertise can help. For example, you might tell a client setting up a new business about the importance of a compliance plan or asset protection. This way, you position yourself as a knowledgeable advisor.

Listening and suggesting related services that truly protect your client’s interests will strengthen your relationship. Always aim to add real value without pushing unnecessary services. Your clients will appreciate your honesty and feel more confident in your guidance.

2. Break your client’s matter down into digestible pieces

Legal jargon can confuse and frustrate clients, especially when explaining why they need additional services. Use simple examples to make things clear. Think of it like buying a car. When you buy a car, you also need to handle registration, insurance, taxes, maintenance, gas, tires, and repairs. Legal services can be similar.

For example, if you’re a corporate lawyer helping a client incorporate a new business, they might think forming the C corp or LLC is enough. They don’t realize they also need to be:

• Registering a DBA
• Applying for an EIN
• Designating a registered agent
• Setting up business bank accounts
• Apply for LLC “pass-through” tax treatment
• Create a compliance plan to maintain compliance
• Obtaining the proper permits and licenses
• Asset protection planning
• Intellectual property applications
• Drafting agreements (e.g., operating, partnership, manufacturing, service agreements)
• Obtaining business financing
• Choosing an accountant
• Purchase insurance

This long list can overwhelm clients. Your job is to break it down into simple steps. Explain each part and why it’s needed. For example, say, “You need a registered agent to receive legal documents on behalf of your business. This keeps you compliant with state laws.”

By explaining things clearly, you help clients understand what needs to be done. This builds their trust in you. They see that you care about their needs and are guiding them through all the ins and outs they aren’t familiar with.

3. Integrity and revenue go hand in hand

If you push services your clients don’t need, they won’t trust you. Instead, listen to their needs and figure out the best steps to help them reach their goals. Educate them along the way.

For example, if a client seeks help with a real estate transaction, explain why title insurance is important. You can say something like, “Title insurance protects you from any legal disputes over property ownership. It’s a safeguard for your investment.” This approach shows you care about their well-being, not just your fees.

Taking the time to explain things clearly and honestly builds trust. Clients will appreciate your integrity and become more loyal. They’ll see you as a reliable advisor. In the long run, this honesty leads to more referrals and repeat business.

Remember, happy clients are your best advertisement. When you treat them well, they spread the word about your services. This approach may take more time, but it pays off with loyal clients and steady revenue for your firm.

Use these tips to attract loyal clients

As a lawyer, you’re a source of knowledge and a guide for often life-changing events. Client’s rely on you to protect their best interest while also educating them along the way. Strictly selling to your clients is a formula for low client retention and unpredictable revenue. By treating clients with respect, listening to their needs, and providing clear, honest advice, you build strong, lasting relationships.

At the end of the day, clients understand that you have a business to run. The difference in how you “sell” or manage your business comes down to your customer service skills and how you treat the client while helping them reach their goals.

Billing hours effectively is a crucial skill in the legal field, directly impacting both a firm’s profitability and an attorney’s career progress. The goal of this guide is to offer grounded, actionable advice on how lawyers can better manage and maximize their billable hours. 

Drawing on the expertise of seasoned legal professionals, this blog will offer insights that cover the major frustrations in legal billing today. We’ll cover topics like:

• Understanding billable hours
• Effective billing practices and tips
• Increasing your billable hours
• Cutting down on non-billable hours
• Setting realistic billable hours targets
• Using legal time tracking software

By leveraging these proven tactics, our guide aims to empower you with the knowledge that can transform how you manage your billable hours, setting the stage for enhanced efficiency and success in your legal career.

How Are Billable Hours Charged?

Lawyers charge billable hours by logging the time spent on client work and multiplying these hours by their hourly rate, usually using 6 or 15-minute increments to ensure precise billing. This detailed method helps maintain clarity and fairness in billing, which is critical to building trust and maintaining professional client relationships.

For instance, consider an attorney who spends three hours and ten minutes drafting a contract. If using six-minute increments, they would log this time as 3.2 hours. At an hourly rate of $300, the charge for this task would be $960.

This method ensures clients are billed fairly for the exact amount of time spent on their case, while attorneys receive appropriate compensation for their skilled services. By keeping detailed records of the time spent on various tasks, firms can provide transparent invoices to clients, highlighting the value delivered in each segment of the legal process.

How Do You Bill Hours Effectively?

Effective billing practices are foundational for maintaining both profitability and client trust. Here are insights and methodologies that even seasoned lawyers can use to refine their billing processes:

1. Enter Your Time Immediately

Enter your billable hours as soon as you complete a task to prevent underreporting. For instance, if you draft a legal brief and then immediately log the time spent right after, you can capture all the time you spent and not accidentally forget it or underestimate it later.

The American Bar Association (ABA) notes that if you wait until the end of the week to enter your billable hours, you’ll lose about 25% of your time. So, as you can see, entering your time as soon as possible is vital to ensuring no lost hours and meeting billable hours goals. 

2. Breakdown Each Task

Instead of block billing, where multiple tasks are lumped into a single time entry, itemize each activity. 

For example, rather than entering “Draft and review contract, correspond with client, revise filing – 4 hours,” break your description down further: “Draft and review contract – 2 hours; Email correspondence with client regarding contract specifics – 1 hour; Revise filing according to client feedback – 1 hour.” 

This clarity helps clients understand the value delivered at each step and can help mitigate disputes.

3. Use Legal Billing and Timekeeping Software

79% of law firms use legal technology specifically for billing purposes, acknowledging the significant time and headaches this software saves.

For example, Bill4Time’s interface lets you enter time from desktops, tablets, or mobile devices immediately after completing tasks. You can use the timer feature to time your tasks or manually enter time. It also supports multiple billing rates, which can be tailored for different clients or tasks, allowing nuanced financial management within diverse cases.

You can also create detailed invoices that clearly communicate the value you’ve delivered, enhancing transparency and trust with your clients. As a bonus, you can automate invoice follow-ups for clients who haven’t paid, ensuring you get paid promptly. These are just some of the many features legal software offers to support your billable hours practices.

See how Bill4Time works with a free trial (no credit card required).

4. Don’t Forget to Bill for Short Tasks

When handling client communications and other brief yet frequent tasks, it’s crucial to recognize each contribution to a case, no matter how small. As you tackle daily emails or quick client updates, diligently record these efforts immediately. 

For instance, if you spend about five minutes each day responding to emails on a particular case, log these individually in your timekeeping software right after completion. Your clients will appreciate the transparency this method provides, seeing a detailed account of how their legal services are being rendered day by day. Plus, it ensures you are paid fairly for all the time you dedicate to a case.

Think about it this way — say you send three emails a week in one case over the course of a year, and each email takes you about five minutes.  That’s 15 minutes per week, which translates to roughly 13 hours annually just for these emails. If you’re billing at a rate of $300 per hour, not logging these short tasks means missing out on approximately $3,900 over the year.

As you can see, these small tasks add up quickly, so be diligent about recording them as they happen.

5. Optimize Your Billing Descriptions for Better Client Understanding

When detailing your billing entries, specificity can significantly enhance client understanding and satisfaction. Instead of a generic entry such as “document review,” take the extra step to specify which document you reviewed and for what specific purpose.

For instance, instead of just listing “Reviewed contract,” expand to “Reviewed employment contract for compliance clauses and potential liabilities.” This description clarifies the precise nature of the task and highlights your thorough approach and expertise, justifying the time spent on each task.

Remember, clear and comprehensive billing descriptions can lead to fewer questions from clients regarding the nature of billed services and facilitate smoother invoice approval processes. This practice also aids in quicker payments and reduces disputes, enhancing the client relationship.

6. Regularly Train Staff on Billable vs. Non-Billable

Understanding which activities count as billable versus non-billable is vital for the financial health of your law practice. Conduct regular training sessions to outline and update these definitions based on current laws and firm policies.

For example, drafting correspondence directly related to a client’s case is billable because it directly contributes to their legal representation. In contrast, time spent on general administrative tasks, such as organizing client files or scheduling appointments, does not typically count as billable unless specifically agreed upon with the client under certain conditions.

7. Negotiate Billing Terms Upfront

Clearly discuss, agree upon, and put into writing what will be billed and what will be off the record with your client before beginning work. For instance, deciding that all communication will be billable unless purely administrative prevents misunderstandings about charges for emails and calls.

It’s also wise to outline how you will handle expenses related to the case, such as filing fees, document retrieval fees, or even travel expenses. Specify whether your firm will absorb these costs, pass them directly to the client, or bill them separately. For instance, you might decide to bill for travel time only when it involves out-of-town proceedings or client meetings that require significant time away from the office.

8. Time Your Invoices at the Right Moments

It’s best to time your invoices to coincide with moments when the client values your service the most — perhaps right after a major court victory or upon delivering a crucial set of documents that significantly advance their position.

Sending an invoice during such a high point increases the likelihood that your bill will be settled swiftly as the client’s satisfaction with your service peaks.

Additionally, align your billing with your client’s payment cycles. By scheduling invoices to arrive just before their financial review periods, you can reduce the waiting time for payments. For example, if your client typically processes payments on the 1st of each month, aim to have your bills reach them by the 24th. This practice ensures your invoices are at the top of the pile, ready to be processed first. 

9. Offer Multiple ePayment Options

In a recent ABA survey, 40% of clients admitted that they would never hire a lawyer who doesn’t accept credit and debit cards. Clearly, offering electronic payment options is basically a requirement to thrive in today’s digital age.

Plus, facilitating electronic payment options can significantly speed up the payment process. For example, a system like Bill4Time Payments, native to Bill4Time legal software, streamlines the payment process by linking billing and payment functions into a single platform. You can easily send clients payment links via an email, text, or the client portal, allowing them to pay invoices directly through the interface where they review their billing details.

10. Automate as Much of the Billing Process as You Can

Automating elements of your billing process is an effective strategy to ensure timely and accurate billing. Within platforms like Bill4Time, certain automation features can significantly reduce manual entry and minimize errors. For example, you can set up recurring billing for ongoing cases, which automates the invoice generation process based on a predefined schedule.

Another practical use of automation within Bill4Time is the automatic late fee calculation. If you’ve ever wondered how to calculate billable hours with late fees, Bill4Time can do the heavy lifting for you. If an invoice goes unpaid past its due date, the system can automatically apply a predetermined late fee. This process incentivizes timely payments and maintains cash flow without the need for manual monitoring. 

How to Bill More Hours as a Lawyer

Maximizing your billable hours not only boosts profitability but also reflects the true extent of your efforts on behalf of your clients. To enhance the effectiveness of your billing practices, consider these tailored strategies that complement the rigorous demands of legal work.

• Prioritize self-care: Maintaining work-life balance is essential for lawyers to prevent burnout. For example, research by Christina Maslach, a well-known psychologist, emphasizes the importance of enhancing social support at the workplace, such as creating mentorship programs or peer support groups to provide emotional and professional support.
• Batch similar tasks: Organize your day by grouping similar legal tasks, like reviewing case files or drafting related legal documents. This process minimizes context-switching and promotes deeper focus.
• Limit non-essential meetings: Consolidate your meeting schedule to only meetings directly impacting client outcomes or case progression. Implement succinct, agenda-driven meetings to maximize efficiency.
• Regularly update case progress: Keep your clients informed with frequent updates. These updates build trust and justify the ongoing work and associated costs, particularly during prolonged cases.
• Monitor your productivity: Use software that tracks how much time you spend on different tasks. This technology helps identify less obvious billable tasks and ensures accurate billing for brief client consultations or quick legal research.
• Set clear daily goals: Aim to meet a daily minimum of billable hours. Setting tangible goals can provide motivation and help you maintain a steady pace, reducing the risk of underutilizing billable hours.
• Capitalize on cross-practice expertise: When cases intersect with other legal specialties — like a divorce matter involving a real estate transaction — offer to manage these aspects. This practice broadens your billable hours and enhances client service by providing comprehensive legal guidance.

Remember, consistency in billing more hours is as important as increasing the number of hours billed. By staying vigilant and proactive, you can significantly enhance your productivity and ensure that your billing practices keep pace with your professional output.

How Can I Reduce Non-Billable Hours?

Every attorney faces the challenge of implementing non-billable hours best practices. Reducing these hours can dramatically increase your efficiency and overall profitability.

A first and crucial step is to clearly define billable vs. non-billable for your firm. What counts as non-billable hours, exactly? These tasks include:

• General clerical work (filing, photocopying, etc.)
• Travel time not specific to a client’s case
• Training sessions for new software or procedures
• Internal meetings not related to client-specific cases
• Organizing physical or digital files
• Scheduling appointments
• Managing non-billable employees
• Volunteer legal services
• Routine email checking not specific to client cases
• Preparing and delivering internal presentations
• Time spent on billing and invoicing
• Office management tasks
• Reading and responding to general professional correspondence
• Website updates and marketing content creation
• Employee reviews and HR activities

Additionally, consider tracking your non-billable time along with your billable time. Software like Bill4Time allows you to track both, giving you comprehensive insights into exactly where your time is going. From there, you can make adjustments like reallocating resources or further training for junior staff on tasks like preliminary research, allowing senior lawyers to dedicate more time to complex, billable work.

How Many Billable Hours Are Realistic?

The number of billable hours can vary widely depending on the type of practice, the firm’s size, and the individual lawyer’s role within the firm. Let’s break billable hours down a bit further below.

How Many Billable Hours Are Realistic in a Year?

Recent research from the National Association for Law Placement (NALP) shows a general increase in both total hours worked and billable hours across various firm sizes. 

For instance, in larger firms (701+ attorneys), average billable hours rose from 1,817 to 1,873 over a year, reflecting an increase in workload and possibly efficiency improvements or increased client demands. 

Smaller firms (101-250 attorneys), however, reported virtually unchanged billable hours, averaging around 1,752 to 1,757 annually. This suggests that smaller firms may have more stable year-over-year billable hours expectations.

How Many Billable Hours in a Month?

Translating the annual data into practical targets monthly, attorneys in larger firms might aim for approximately 156 billable hours (based on 1,873 annual hours), while those in smaller firms should consider around 146 hours monthly (based on 1,752 annual hours). 

How Many Billable Hours Are Normal for a Week?

Weekly, the data indicates that lawyers should target around 36 to 39 billable hours to meet the higher end of the annual spectrum observed in larger firms. For smaller firms, aiming for about 34 to 36 hours per week aligns with their yearly averages.

This breakdown can help you plan your workload more evenly throughout the year and manage your time effectively.

How Do You Master Billable Hours? With Bill4Time

As you implement these billable hours best practices, consider the benefits of leveraging a specialized legal billing platform like Bill4Time. This software eases the complexity of tracking and logging billable hours and improves the way you manage invoices.  

If you’re a legal professional striving to hone your billing methods, it’s time for Bill4Time. Start with a free trial and see the positive impact on your practice’s efficiency and financial outcomes.