Realization rate

The realization rate is the proportion of billable hours at standard billing rates to the amount that is actually billed to clients. For example, an attorney's standard rate is $300/hour, and she works 140 billable hours in a month. Thus, her monthly billing at her standard rate is $42,000. However, the partner only bills $40,000, which is a realization rate of 95.2% (calculated as $40,000 billed divided by $42,000 at standard rates).

A low realization rate directly and negatively impacts the profitability of a firm, since its revenues are reduced. A low realization rate may be caused by the following factors:

  • Junior employees tend to be less efficient, so fewer of their hours are billed.
  • Clients impose pressure to keep total billings low.
  • There is a misunderstanding regarding the scope of the work to be performed.

Realization rates can be reported by individual, partner, office, or practice group.

Related Courses

Law Firm Accounting