I’m Melissa Shanahan, and this is The Law Firm Owner Podcast Episode #263.

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Here, everyone, welcome to this week's episode. Thanks for being here. And thank you to those of you who reached out after last week's episode, Episode 262. I got some thank yous, I got some thumbs ups from you all, and I really appreciate it. Thanks for that.

Sometimes when you have a podcast, and some of you may know this, it's just crickets. You do what you do every week; you do your best every week, but you don't always know how it lands. But I do think of my role when I work with clients, on this podcast and anything to do with Velocity Work, is to tell the truth and to be a truth seeker. To really get to the heart of a matter and not skirt around things.

Like, get to it. Facts, not feelings. That's why we talk about that a lot. You just cut through the noise and you get to it, and you get to what matters. That was an example of that last week. And so, thanks to everyone who gave a thumbs up and said thank you, it means a lot.

Today, what we're going to be digging into, it's actually born out of a similar motivation, but less of a rant. So, what we're talking about today is the order in which to go in when you are making hires and building a team. I am going to be speaking to a certain kind of firm with a certain set of circumstances, or similar type of circumstances.

I'll dig in to the best of my ability. But listen, the truth is, I can't really advise or walk someone through this unless I know their numbers, unless I know their data. And when I understand not just their data, but also their practice areas and what they're dealing with and their fee structure, etc., then I can be so much more helpful in a pointed way. And that's what we do for clients.

So, when I present to you here, this information, I'm hoping to give you a lot of good things to think about. A lot of things that you will be able to pull out some nuggets that will be useful to you on your journey. But if you feel like you need some more help, just get involved with Velocity Work. That's part of what we'll do.

Okay, when we're talking about hiring, this is a scenario that I commonly encounter. So, this is why it's a little similar to last week; that I hear and I'm privy to, and I don't agree with it in most cases, like 99% of cases. I don't agree with this. I will hear one attorney, or I will see one attorney, talking to another attorney and offering up advice that they need to make another attorney hire pretty quickly.

Maybe this is a solo attorney, solo law firm owner, and they are looking to make another supporting role hire. So, a paralegal, for instance. Maybe an administrative assistant. And then, I'll hear someone else, who knows nothing about the under the hood of that business, of this person's business, I’ll hear someone else say to them, “And next year, you can hire an attorney. It's going to take a lot more off your plate, and you're going to have more freedom, and you're going to have more space.”

They give all these reasons for it. I'm like, “Oh my gosh,” sometimes it feels like the blind leading the blind. Because this is not the way to approach the topic. Maybe they are in the 1%, where it makes sense to make the next hire as an attorney. But in most cases, that doesn't make sense. And I'm going to walk you through why, here.

Now, a few disclaimers or caveats. Some of you listening to this have a team built out. So, I want you to listen to this with an ear to see, “Oh, have I done this in a way where I have a bit of a bloated scenario with my people cost in my business, because of the way that I began the process?” So, listen for that. And the answer may be no, and you may be good to go. But listen for that, because you'll want to know that if that's true for you.

And the other thing I want to say is that some of you who have already built out a team, and you are very on top of your numbers and on margins and so locked into the numbers, and you're very clear that you're as profitable as you should be. You're not missing out on profitability because of the way you've built this. And it may sound different than the way that I am instructing someone here, who's brand new, to build it.

However, most people that will find themselves there, they're listening to this kind of conversation for the first or second or third time and they have their team, they have this thing that they've built. Most of the time, when you go back to the beginning, when they were hiring, they didn't approach it this way.

And that doesn't mean they're in a world of hurt right now, but I know for sure, that the way that I'm going to talk about it today will help with as much efficiency and with as much net profit as there should be in a business, and all along the way.

So, you may be in a place right now, where your profit margins are healthy, the team is locked and loaded, everything is efficient, there are systems in place. Everything is running the way that it should, and you feel really good about it. This is not to suggest that you should not feel good about that.

I am talking to someone who is embarking on a journey of hiring because they are busy and they need to hire. And when they are doing so they need to think about it in these ways. So, for everyone listening to this, I don't care the size of your firm, this is a healthy conversation. And you can take nuggets of this and think about it within your own business.

But I am especially talking to people, under $1 million, who are really building out their teams for the initial foundational team. And that is what we're going to dig into today.

In terms of the order, I'm going to give a couple of scenarios. One is we're going to dig in first to an hourly fee structure, hourly billing scenario. If you bill by the hour, and let's say you started up this firm, you are the attorney, the only attorney working, and you're billing hourly and you don't have help. You're trying to figure out what help you need.

First of all, I want to recommend at this point that you go read or listen to… listening to I think is better, because he riffs at the end of each chapter… Dan Martell's book Buy Back Your Time. Because the way that approach is, it’s very, very smart, very articulate, and laid out in a way that you can follow and you can do. It's a fantastic resource. So, that's the first thing I'll say.

Now, what you're going to find when you read that, which is not to atypical of many business experts out there, is that you should hire for the lowest cost activities, the lowest value, in terms of value that you can earn money on, the lowest value activities that you are handling.

And so, naturally, in many cases, in most cases, this means an administrative assistant of sorts, to handle activities that have nothing to do with producing the legal work which you get paid for in the firm. And so, you can hand these activities off. This is the “Delegation Quadrant” in his book, in the DRIP Matrix.

But essentially, you could write down a list of all the things that you do that are administrative, an administrative assistant can handle it. Even if you have thoughts about, “Well, that's a high level administrative assistant,” maybe. You're probably overestimating what it takes once they really understand the process. Someone can follow that process to do so many of the things that are on your plate.

Alright, so that is a very natural path to take. Which is, “Okay, I need someone to handle this administrative work.” And in many cases, there's a lot of administrative work that the person can be virtual, they do not need to be in office. So, thinking about hiring an overseas VA, for example… or maybe it is in the States; but it's a virtual assistant… could be a great option.

An overseas option is a fantastic option for many, many, many people, because you can get a lot of high quality people in these roles who love this work, love this job. It is a fit for them. It's a fit for their life, and it's a fit for you. And it's a lower budgeted way to have that work handled, which can be super meaningful for you as a small business owner when you're getting started.

Now, whether you do overseas or not, I don't have an opinion about how most people should do this. But there is a calculation that comes in handy that Dan Martell offers in that book. It's called your “Buyback Rate”. There's a calculation that basically helps you figure out what should you be spending on this.

And the reason that that calculation exists, is to make sure that you are getting the ROI that you should be getting from getting this time back. That's built into the equation, so you can check that out if you want to.

So, administrative duties for sure should be the first thing off your plate, right? Now, the next set of activities that should be off of your plate, is work that is to produce the result for your clients that is not needed by an attorney to be done.

This could be a paralegal. In some cases, a legal assistant. But work that you could delegate, that is within the product that you are providing, the service that you're providing to your clients. It's the stuff that you don't need to be the one to do. That's the next level up of tasks that should be replaced.

Now, both of these roles are support for the attorney, right? Now you get to design how this looks. You get to design if you're going to use an overseas VA, and then you're also going to maybe hire a paralegal. You get to design it if you are going to hire a paralegal, and she's going to handle both because you want a full time role in your company. She's going to handle the legal work that you're going to hand her or him and also the administrative tasks. And that's a part of this role.

Because you're buying back your time. You are not hiring for a specific role, you are hiring to buy back your time. This is the most efficient, most cost effective way to build out the help and the support inside of your firm. And that includes future attorneys, by the way. We're not there yet. So, you could hire a paralegal that's going to handle both.

And then, as they get busier, as this firm gets busier, and the paralegal has more and more legal tasks to work on versus administrative tasks, then you can hire an administrative assistant to come in and just do administrative things. And now you have a paralegal that's very well versed in your practice and can handle the full… has more space for… more of the legal work.

Now, the billable hours things. This is why I'm talking to hourly, first. You need to make sure that anyone who is considered a producer in your firm… And a producer is someone who works on the case, the matter, or the file, to get it pushed to completion for your client. So, paralegal. This is the billable work. Paralegals have a billable rate, and if they are doing billable work on that, then great. They have a rate associated with them.

Attorneys certainly have a rate associated with them. Sometimes legal assistants also have a rate that is billed out as well, for whatever they can handle that is actually working on the case, or the file, or the matter.

This is what's important to know. If you are hiring a producer, if you have someone who is doing work, is producing work on the legal side of things, they need to bring in at least three times what the company is paying to have them working at your company, at your business, at your law firm.

You'll hear around three to five times, so a multiple of 3-5x. Which basically means, if you are paying someone $50,000 a year, and their full time job is to be legally focused on the legal product, then they should be able to bring in $150,000. Now, actually, as I'm saying that, $50,000 say that's their salary. Well, okay, plus taxes, plus benefits, if you offer benefits; it should be the whole package.

For this example, if someone is making a $50,000 salary, and they are an employee, let's just say $60K… you can figure out, if you want to, what you're paying in taxes… So $60K, they should be bringing in, billing every year, $180,000. $60,000 x 3. Now, the reason for this… You'll hear this range, which I just said a moment ago, 3-5x. So, anywhere from $180,000 to $300,000 is what that would look like. That's the range they should be in.

I meet people who understandably, because they don't understand fully what this is about, will say, “I don't want my people to be 5x, or multiple 5x. It's feels exploitive.” Okay, but it's not. And let me explain to you why it's not.

Any producers that you have in the firm, they are doing the only work in the firm that is bringing in any money. The money that is brought in cannot just cover themselves. If it's just covering themselves, the business is losing money. The business is not in healthy position. Because there are a lot of other expenses to be taken care of, by the money that comes through the door.

So, if the money coming through the door by a producer is only enough to cover themselves, the business is going to be hurting. You will feel it. You will feel tight. You will feel broke. You will feel like cash poor. You will feel like you cannot pull money out of the business when you should be able to. You can't throw perks for your team, and team outings and team lunches feel stressful. You feel like you should do them, but you can't do them because there's not enough cash coming in.

This is really important for people to understand. Producers cannot just cover themselves. Your firm will lose money because of that position, if that's what's happening. And then, even 2x is still too tight. It does depend on your overhead. It depends on a lot of things. It depends on the positions. It depends on your expenses.

But I'm telling you, I have worked with so many firms on this at this point. 3x is the minimum of what it should be. If someone is not at 3x, if they are not bringing in three times what the firm is paying out to have that person employed there… or it could be a contractor even… to be contracted, then you will feel it. You will not know why necessarily…

If you don't know your numbers, you'll just think, “Well, they're bringing in money. Everybody's doing their job. Why do we feel like we don't have breathing space to do some of the things that we should be able to do? Why do I not have breathing space to give a bonus to my people? Why do I not have breathing space to take owner’s draw?” That would be nice, right? You will feel tight.

And if you have 3x and up, you will not feel the same level of tightness. Now, 3x is the baseline. This is not considered like, “Oh, you should just be happy and never look at this again.” No, you should always look at these numbers. Because there are so many firms that I work with that really… If the number of hours that someone is billing out every day… again, I'm talking to people who are hourly billing… if their main job is to focus on the legal work, the legal product, and do billable work...

Okay, well, they're not going to do eight hours a day, I think we all can agree on that. And they're probably not going to do seven per day, right? People have to go to the bathroom. They have to do certain things that even though most of the work is billable, not every second of their day is billable. So, you finding a reasonable expectation.

When you think about that person's day, and you think about the ratio of their time that should be spent billing, how many hours a day is that on average? Let's just say that when you really sit down to think through this, and the role is five hours, on average, a day, should be able to be billable. Okay, this is good to know.

Because first of all, this is an expectation. When you really think about their job and their role, unless you're giving them a ton of administrative work, then this is not going to be the case, right? But generally speaking, if you think that five hours/day should be fair for that position. Let's say the billable rate is $150. That's standard. It's low in many cases, but that standard.

So, $150/hour for that person, times five hours/day is $750/day, times five days/week is $3,750/week. This is what's billed, right? Times… and I'm going to use 4.3 weeks in a month, because on average there are 4.3 weeks in a month... so, times 4.3, on average, in a month. A little over $16,000 should be brought in by this position, as billed out at $150/hour, and they're expected to bill five hours/day. So, $16K.

Now, let's do that times 12. That's $193,500. You could even just say $190,000. But $190,000 should be brought into the business because of their role and what their role should be able to produce.

Now, if you are paying that person, all in, let's say $60,000… and insert your own numbers here, what you're paying… but if you're paying that person $60,000, then they are above the three times multiple. 3x would be $180,000. Well, with what you just calculated, it feels very reasonable to you about their role, it's $190,000. So ,you're good. You're in the clear.

But this is the math that you have to do. People don't do this. And they get themselves into arrangements with either contractors or employees, and it doesn't work out, the math doesn't work out, in a way that means the business is going to be okay. So, you have to think through this.

When you bill hourly you can do this position by position, that is a billable position, that is a producer position. And you can figure out for the individual, are they bringing in, because of what they're billing out, at least three times what the business is paying to employ them, or what the business is paying to have them as a contractor?

And if the answer is yes, it's above 3x, you should know that you are in a healthier percentage than most of the firms that exist. Now, the firms that I work with, this is a focus. So, in the firms I work with this does exist. And we do think through, “What is fair?” We're not trying to exploit someone in their position and try to overwork them to get 5x through the door. No.

We're trying to figure out really what's reasonable and expected, and does that line up with what is healthy for the firm once you pay them their wages? You have to do these checks and balances. You have to run these scenarios before you actually get into bed, into an agreement, with someone, because it's not fair to them.

It's also not fair to the business. If you're getting into an agreement with someone that ultimately is going to strain the business, it is not going to end well. In most cases, it's not going to end well. Because you're going to have to eventually, once you do the math and figure this out, why the business is feeling strain, it's because of the ratio. The multiple of the producer and what they're bringing in versus what they're paid.

Then you're going to have to have a conversation that looks like adjusting expectations in a way that feels annoying to them, in many cases. They came in on one set of standards and agreement, and now you're upping it for no extra pay. They'll take it as if you're taking something from them. You're tasking them with more for less. It's just not a good scenario.

And that's not because the person doesn't have a good mindset. It's because they entered into an agreement and you're changing the game on them now. So, that's why it's important to run these scenarios before you make an offer, and before you get into an agreement, so that you know the business is going to be taken care of.

Okay, so we've been talking about hourly. There are a couple things I want to say here on this. This might be true for flat fee and contingency, but we'll get there in a second as well. I'm just deep in the hourly for a second.

I just talked to someone who is in such a good scenario. They attorney by themselves, and they are on track for close to $400K, maybe above $400K for the year. And it’s just them. So, clearly, they need help. That was identified in a conversation with us prior. Not that it needed a conversation with us, this person knows they need help, right?

So, they need help, and there are a few different ways they could go about it. They certainly have administrative things that they are handling that they don't need to be handling, so they could hire overseas for that. And that can be maybe a part time role. But it is certainly low cost enough, if you go with overseas, that they could make it a full-time role. And be very motivated to get as much off of their plate and onto this new person's plate, because the math just makes so much sense.

So, you could just hire full time and you are still in a really good position. You're not paying out over your head in order to have this person there. Just keep funneling tasks to them. The more you uncover, the more you give to them. That's one way.

After that the next hire would be someone to help with a legal work, just like we've laid out here on this podcast. Now, what we talked about… which I think is equally a smart move. I mean, you're going to have to watch it closer, but it's still a smart move… is to hire a paralegal at maybe $25/hour. So, it'd be a $50,000 a year salary, plus taxes, benefits, whatever. So $60,000 a year, all in, for this person to be there.

Half of their job is going to be paralegal focused and half of their job will be administrative focused. Now, that's sort of an expensive administrative assistant, compared to what maybe you could get. However, you are basically hiring to buy back your time, and you're paying a rate that's a little, for the administrative stuff, a little higher than what you will ultimately want to pay.

But you are growing, and you know you've got to pass off more and more legal work so that you are, as the attorney, teed up better and faster and you're not just in it. You're not in the work, inside of the case or the matter or the file, that you don't have to be in. So, you have someone here who's capable of handling some of that; teeing you up as the attorney and administratively can handle some tasks.

Knowing that the growth is coming, you're going to have to funnel more and more and more of the legal work to the paralegal. And as they reach capacity, then you could hire a full-time admin. And then, you actually have a paralegal that could be dedicated full time to the legal work. So, this is not a bad route to go as long as you know the math.

When we did the math on this, essentially, if half that person's role is going to be producing legal work, it's going to be billable work, then that's about $30,000, not $60,000. And so, okay, $30,000. And what they would need to do to be 3x… Basically, I did the math. You all could do the math on your own if you want to, but I'll spare us me going into the nitty-gritty of the numbers.

But that person, who is the paralegal, if that half of their job is to be billing, they need to bring in about 50 hours/month in order for them to make sure that the producer work that they're doing is covering… it's at a 3x. That is very doable. I talked to this owner about this. They're like, “Oh, that's easy. I'm going to be able to give this person 50 hours, no problem.” And then, of course, they'll have administrative tasks as well.

That gives them something to build from and they know that business is protected. Because with the production that's going out, the billable is going to be three times what the owner, what the company, is paying that producer to do that work. So ,everything else is taken care of too. It's a really healthy scenario.

And the reason that it's a healthy scenario in this instance, is because of the growth that is happening for this firm, for this law firm owner. Now, if you are not experiencing much growth, if it's just not happening that way for you, then I probably would not say, “Hey, go out and get this paralegal who can handle both. And as you grow, she can take on more and more legal, and then you will find a point where you are ready to hire administratively, a full time role administratively.”

I probably wouldn't say the same thing. What I would say is, “Start with an admin. Get the admin in to get that stuff off. Because you're not making as much money, and the growth isn't obviously there. It might be there, and you can cultivate that more. You could focus on marketing and getting more new cases or matters to the door.

But if that is not just your reality right now, then do not go spend for a producer, just spend on the admin. Because the admin is so much more affordable to cover and get things off your plate so that you're not so bogged down. And you can just focus on legal work. Maybe some of it is what a paralegal will do, and we'll get there, we'll get there.

But start with the admin, because you don't have this sense… when you're looking at all the numbers, the growth really isn't showing you that you are ready to make that investment. The owner that I was talking to, the growth is there. They are ready for someone to take over administrative tasks and some legal work. So, this is a smart move.

And then they can further… just hire to buy back more time of the paralegal’s time so that she or he then has more time to focus on the legal work. And then, once you have both of those positions fully up and running, then and only then, when there's no bloatedness, when the producer is producing three times as much, billing three times as much as what is being invested in them to produce, then you can think about hiring for the next legal position.

Maybe that's another paralegal, maybe that's an attorney. You do have to weigh out, are you still handling stuff that you do not need to handle as an attorney doing the legal work? And if the answer is yes, then you need another support staff to be able to help.

If your current paralegal, or the person in the position to help you with the legal work and to tee you up, if they are at full capacity and they are billing… like a full-time position, they're covering themselves a 3x… and you still need more support, then you need to hire another support position, another paralegal.

Once the attorney is fully supported, and they are not continuing to do work that they could pass off to a paralegal, and things are humming from that sense, then you know you're ready to hire an attorney.

But here's the thing, and this is why, guys, you could technically… Let's say you have a paralegal and she is at capacity. There's still stuff that you're doing that you could pass to a paralegal, but they're already at capacity. You know that their capacity because they're bringing in a healthy amount for the business based on what's being paid out to them. That's one of the things that you look at when you're trying to determine capacity.

If they don't have any more room to take any more from the main attorney that's working, let's just say that's you for now, then if you hire an attorney to come on board and handle things that a paralegal could own, that is a very expensive paralegal to do paralegal tasks. Because you're paying an attorney to do it.

And so, what you have to start to see, is this is how people start to get bloated with their people-cost up front. Because they just kind of shrug it off. It's like, “Well, you know what? We need extra help. And as a paralegal, she’s at capacity. She's doing a great job. And I do have more that a paralegal could do, but also, pretty soon, we're going to need attorney. Let's just get an attorney in.”

You can do that. But people don't usually make that decision with eyes wide open. They make that decision not on numbers, they don't do the math, they don't crunch these scenarios. They just do it based on, “Well, let's just bring this other person in and then we'll get them rolling.” But that sets you up for this experience of hiring in the future, based in this way, without understanding the implications on the numbers, on the multiple for each producer.

It's going to be very hard for an attorney who's coming in to do work that's paralegal work, plus their work, to actually do 3x. Because you're paying them this big amount for work that, technically, shouldn't be an attorney doing all of that work. So, you can see where this starts to get muddy. And you can see where it starts to get a little unhealthy.

But it's sneaky. You don't sniff it out, because you aren't running the numbers and you're not running the scenarios. And really being clear about the work; it's in the proper hands. That it's not just being given to someone who can do it. It's being given to the person who should be doing it.

Hopefully this is helping make sense. Or maybe there's just a light bulb going off for you with within your own world. That one of the things I've said is something that you know you need to look into for yourself and just get a read on exactly what the numbers are.

And if you're listening to this, and you're like, “I don't know what the numbers are, but I know I'm good.” You do not. Here's why I know that. I work with private clients all the time who say that and they think that. But I dig into their business and I look at all the numbers, and I present it to them and they realize that the margins are not as good as what they thought.

That they are paying out this attorney, and the attorney is only bringing in 1.8 times what the company, or what the business is investing in having that employee there. They don't know that. They may not be sure it's right at a three, but they feel like it's probably good. But when they see the numbers…

Or even if I say 1.8, but I've seen it all over the map; 1.8, 2.2, 2.7. I've seen a lot lower than 1.8, by the way. I see .9; that's not even covering their salary. So, I've seen it all over the map. But people are typically surprised when they see the numbers. Or relieved, because they have a sense that something's wrong. They have a sense that it's just too tight. That they should have higher expectations of this attorney, or of this paralegal, of the producer position. But they don't have data to back that up.

So, they sort of feel like they're between a rock and a hard spot. They're just trying to get this person motivated to be more efficient, or to be able to handle more stuff, or to whatever; training, better training. And they're just trying to not feel as tight as what the way it feels. But they don't have data to point to, to say, “Okay, wait a minute. This is where we are. And this is where we need to be. We're going to work together to close that gap.”

That's pretty straightforward conversation. It's simple. But it isn't always easy to get to if you don't really know how to look at this. So, I'm hoping that the way that I'm describing this gives you a way for you to look at this, for yourself and for your firm, just to see where everybody stands. And if they aren't at 3x, if they are barely covering themselves even, okay. Okay.

But listen, you never laid expectations out very well from the get-go, so you cannot be upset with this person. And you cannot just put smackdown on this person. That's not how this gets to go. This is on you. This is because the math wasn't done upfront. You may not have known how to do it, so clearly, there's a learning curve here as an owner. There's a way. The more you understand this stuff, the better business owner you become.

So, it's nobody's fault. It just is what is, here and now, and we need to deal it with responsibly. We do not sweep it under the rug because we don't know how to have a hard conversation. No, the business comes first. You have to take care of the entity. You have to take care of the business. If you don't take care of the business, then nobody else is being taken care of either, including your clients by the way.

You don't get to sweep this under the rug and justify it, like, “Well, it is what it is because I didn't know what I was doing when I hired that person.” No,  the attitude needs to be, “Oh, it is what it is. So, now what? How do I shift this? How do I shift this into a scenario that makes a lot of sense for my business? And so that the business is healthy and is taking care of all the people inside of the business, as well as clients?” Etc. etc.

So, yeah, you have to have a path forward. You don't just push this under the rug because you didn't know, back when you made the hire. When you know better, you do better. When you know better, you course correct.

Hopefully something in there is helpful around the conversation. In thinking about the order in which to hire, you just have to make sure that you are being thoughtful about the return on your investment that you make into producers, specifically. Sure there is an ROI for administrative or intake on the positions that aren't necessarily considered producers; there's still an ROI to be looked at.

But I'm telling you, making sure that the producers in your firm are actually producing at least 3x or higher, of what the company is investing in that role, is a key for success. It is a success factor, let's put it that way. And 3x is the baseline. It is not the top. It is the beginning of what is okay for the business.

Also, there are all kinds of things to discuss. I'm not going to go deep on all this, but there are solutions here. One is that when you look at the billable hours, it's two or three a day. I mean, if their full time job is to be working on files, shouldn't it be somewhere closer to five or four, or something, right? What is going on here? So, we need to help them, and kind of uncover what the barriers are to that.

That's number one, is looking at the number of hours. And does that feel reasonable? Does that feel right? And if it doesn't feel right, getting underneath that. What's the root cause of why that's off? Sometimes it's just setting expectations. Sometimes it's deeper than that.

The other thing you can do is raise the rates. So, if you are billing at $100/hour, and have been for a long time, maybe it's time to raise the rate. So, their billable rate will become $125 or $150. That's a big deal. That is a big deal. Adjusting rates is a lever you can pull to make a huge difference in the health of the business. So, maybe it's time for you to do that. Maybe it's time for you to look at that.

Okay, I'm going to move on, so that I can have some conversation for those of you who are flat fee or contingency fee. A lot of the same principles apply. 3x is just a baseline. But it's harder to do that by producer, and here's why. So, let's say you have an attorney and most of the fees that come into the firm are attributed to an attorney; not split up between paralegal, attorney, legal assistant. No, it's usually one attorney.

Sometimes on a team… especially, I’m thinking of PI… oftentimes, there are two attorneys, and one attorney really gets the fees attributed to them. But there's another attorney that's working on cases underneath them, as well. Plus a paralegal or two, plus legal assistant.

So, here's how you have to look at it from a contingency fee or flat fee perspective. I've done a podcast on this that was so in depth, I've said this before on this podcast. I almost regretted doing it because it was so in the weeds, but I was just trying to show you all how to do the math on this kind of production.

But essentially, how you have to look at it is almost as a team or as a pod. So, you have a team of people that push out a specific set of work. And most the time they tend to work together. The total sum of the investment in having those producers… because they are producing, they are working on the file or the cases or the matters, so they are pushing out the legal work. And the total sum of the investment that the business makes to have them there to do that work needs to be totaled up.

Let's say you have a $60,000/year paralegal. You have $100,000 attorney, you have a $50,000 legal assistant. I don't know, I'm just making up these numbers, right? Okay, so that is $210,000 that the business is paying to have these people here to do the legal work. So, this team of people needs to be bringing in, needs to be producing together, at least $630,000.

Again, this is assuming all three are full-time positions for the production of legal work. If one of them only spends half of their time on the legal work, and then they do half administrative duties, then you would take half of their salary. Not their salary, sorry. It's their salary, plus all the benefits and everything. So, it's a total investment.

Let's say that person, the legal assistant, that all-in costs the company $50,000 to have her employed there. We'll split that in half. So, $25,000 is what is paid out for her to do the legal work. Well then, the all-in investment, instead of $210,000, is now $185,000; the total amount that this company is paying into these team members to produce this work, the legal work.

So, $185,000, 3 times that amount. Three times the amount that the company is paying for this work to be pushed out is $555,000. Okay, well as a pod, as a team, that is what needs to come in for the work being done. How you can tell is, oftentimes when the fees come in, they are attributed to the attorney. But it's not just the attorney, it's the attorney plus the paralegal plus the assistant that's actually pushing out all of this work. And so, you have to look at the full picture.

This is also where people mess up. Because they'll say, “Yeah, I pay my attorney $150,000, and he brings in $600,000. He's a rockstar.” Ah, okay. Immediately, when someone tells me that, I know with almost certainty that it is not just the attorney, their flat fee or contingency fee, when they're talking to me. Because you just don't hear that.

So, probably what's happening, is there's some support staff that is helping push out that work but it's all getting attributed to the attorney. And you have to understand the business well enough to know, yes, it comes in with his initials, or her initials as the attorney, attached to those fees coming in. But you are paying more than just that attorney to push that work out. You have to do that math to figure out: How much are you spending? How much is the firm spending to push that work out?

And what comes back needs to be at least 3x. Again, you guys, I'm going to keep saying this, that is the baseline. That does not mean that there can't be improvements. Oftentimes, there can be improvements. But that is the baseline.

So, that's how you have to think about that. If you are flat fee or contingency, you have to look at what you're paying out for the attorney to push out that work... And if that's you, that's you. Or if you've hired somebody else, that's fine… and the paralegal and the assistant, if you have all three of those roles.

Add all of that up, the full investment for the company, and then three times that needs to be coming back through the door because of the work that that team is doing specifically. Again, this is so that it's not just covering their own investment, the investment that's made in them.

It's not just covering that, it's covering all of the other administrative positions that don't have anything to do with production, they're not billing, also intake. Also overhead, and the building that you're in, and the equipment that you use and all the things. So, it's not just about covering themselves, that is not good enough.

So, I think you can see… Hopefully, this is helpful. But this is how you need to be thinking about this. It is not healthy to be setting a bar lower than three times what the investment is in the producers, in terms of what's getting produced. It's not healthy.

I haven't met anybody yet that's like, “No, no. I only want to do 2.5.” What? When you do the math, tell me how this makes sense. It's okay that they say that before we do math, because they're just learning. They don't know. But then when we do the math, and they want to hold the line at 2.5, those are just fears that are in the way, that we need to work through.

Because from a mathematical perspective, the business cannot function in the ways that it should be able to function. The business cannot have margin in the way it should have margin. So, you need to raise your standards. That's what this comes down to, is raising standards and being able to articulate those standards so that they are expectations with the team. And you could do that in a really healthy way.

The last thing I think I should say here to help. When you're thinking about the order in which to hire, again, you have to evaluate everyone's capacity within that producer team, that pod of people that's pushing out legal work, and see truly what their capacity is. Now, the best way to do this is to track time, even if you just do a time study.

So, if you're not really willing to track time ongoing… which a lot of folks are, and those folks have a lot of data that the people that don't, they just don't have... But if you're not willing to do that, being willing to do for a certain set period of time a time study, to see how many hours is your paralegal spending on billable work every day? How many hours? Is the assistant spending on billable work every day? How many hours is the attorney spending on billable work every day?

Because oftentimes, what happens within flat fee and contingency is there's invisible work that no one sees and it makes people inefficient. So, there are times where attorneys are spending a lot of time on administrative tasks that wouldn't be billable anyway. And you're not billing by the hour, so it doesn't really matter, right? Just get your job done.

But there's inefficiency sort of baked in. So, doing a time study and having people track the time on what they're spending their time on, every so often for a three week period, a four week period, can be very telling. That will help you figure out, “Okay, how do we need to redistribute this work? What do we need to add here really?”

What you might find is you need an administrative assistant hired, so that, once you've done the time study, the things that are not billable and somebody else could totally handle can be passed to the administrative assistant. That provides more capacity to your pod to produce more work. So, that the money that's brought in because of that pod, the income stream that's brought in because of that pod, is healthier.

Again, this is not about exploiting, this is just about understanding the work, understanding the investment in the work being produced, and understanding what you're getting for that investment.

And if you understand all those things, you can start to make tweaks, that in many cases is quite the opposite of exploitive. It is creating more fulfillment, because the people who are supposed to be doing the majority of the legal work are not bogged down by administrative tasks that somebody else could do.

This is really just about working smarter, not harder. Which I know is a phrase that so many people out there say, but this is what that means. This is what it's like to be able to work smarter and not harder. So, I'm hoping that there's something helpful for you.

Listen, when I'm digging in with someone one on one, I do not have a prescription. Even if it sounds like I do, when I'm saying it in this podcast, I'm speaking to a general audience. Which is very hard, because when I am digging in with someone on their business, I will ask… I will ask, but if it's a private client, I can look at these numbers in their firm, and start to analyze and see patterns, and be able to offer areas of opportunity.

It is unique firm to firm. There is not a blueprint that works straight up for every firm out there, when you are thinking about how to hire in the smartest ways possible so that the business stays as healthy as possible. You can't feel the inefficiency, you can't feel the bloatedness up front, when you first start making these hires. I mean, sometimes you can, if they're egregious enough, you will feel the stress of paying out these people.

But in many instances, it'll just feel a little tight, “But we're just getting them up to speed. It's all okay.” And then as time goes on, it never really gets alleviated in the way that it feels like it should be alleviated.

It always feels like we have to watch our pennies, we have to not be able to take distribution when we want to take distribution, not be able to just do nice things for the team and to reward them, without putting out a credit card that's really hard to pay off. It starts to stack like this and it becomes uncomfortable. You have to be very careful. When it's too far in is when you'll start to notice, “Oh, wait a minute,” and you'll start to evaluate all this.

You can come back from it. But it's so much easier to just build it with awareness instead of realizing it later. No matter where you are, you have the ability now, based on what I've said, to have a look at certain things in your business, maybe from an angle that you weren't looking at it before.

And it will give you more awareness, and the more awareness that you have, the better calls that you can make. The more facts that you have, the better decisions you can make, and not just be going on hunches and not feel blind.

This is how you start to dig into this. Just knowing that whatever decisions you make, you're making it from place of facts and not feelings. Again, no matter the decision you make. It doesn't have to line up perfectly with something I’ve said on this podcast, but making decisions from a place of facts, not feelings, is a very empowering place to be. And lets you have choice.

Alright, thank you everyone. Have a wonderful week. I'll see you here next Tuesday.

Hey, you may not know this, but there's a free guide for a process I teach called Monday Map/Friday Wrap. If you go to VelocityWork.com, it's all yours. It's about how to plan your time and honor your plans. So, that week over week, more work that moves the needle is getting done in less time. Go to VelocityWork.com to get your free copy.

Thank you for listening to The Law Firm Owner Podcast. If you're ready to get clearer on your vision, data, and mindset, then head over to VelocityWork.com where you can plug in to Quarterly Strategic Planning, with accountability and coaching in between. This is the work that creates Velocity.