How Much Did That Cost?

In manufacturing, there is a metric known as “Cost of Goods Sold”.  When it comes to legal services, the equivalent metric would be the “Cost of Services Rendered” (CoSR).

Do you know what it costs you to render an hour’s worth of legal services?

This metric looks at what you expect an hour’s worth of each lawyer’s legal time to cost your firm, on average.  For a solo lawyer, it is straightforward – the total forecast expenses for the firm (including the lawyer’s draws) divided by his or her billable time expectation.

For example, if a lawyer expects that his practice will cost $200,000/year and he expects to bill 1,000 hours that, then their CoSR = 200,000/1,000 = $200/hr.

This provides you with a very important yardstick.  If you expect to work two hours on a matter and you do not expect to be able to charge one or two times your cost, $400 for the work, for example, then you should be asking yourself why you are taking on this matter, which doesn’t include profit, and not referring it out to someone else?

This gives rise to a very important threshold question when looking at any new matter:  will the expected fees in this file exceed my forecast CoSR?

If your expected fees are less than your CoSR for the file – then you have a decision to make.  Either accept the case – knowing it is a loss-leader for you – or refer it out to someone who, hopefully, can handle it in a financially-rewarding way.

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