Lawyer leverage is the ratio of equity partners to all other lawyers in a firm. When there is a high leverage ratio, this indicates that the distributable income of the equity partners should increase, since they are benefiting from the profits generated by everyone else in the firm. This concept only works when the non-partner personnel are sufficiently highly utilized to generate enough fee income to cover their direct costs. The leverage ratio is:
Number of equity partners ÷ Number of all other lawyers = Lawyer leverage ratio
A high ratio has other benefits besides boosting equity partner income. These benefits are:
- The ability to delegate work, thereby putting less pressure on the equity partners.
- Reduced write-offs, since the equity partners are not charging their high fees on low-value work.
- There is a large pool of candidates for future equity partner positions.
Most law firms maintain a proportion of 1/2 to two lawyers for each equity partner.
The lawyer leverage ratio is also known as the partner-associate ratio.