Lawyer leverage definition
/What is Lawyer Leverage?
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. Most law firms maintain a proportion of 1/2 to two lawyers for each equity partner.
How to Calculate Lawyer Leverage
To calculate the lawyer leverage ratio, divide the number of equity partners by the number of all other lawyers. The formula is as follows:
Number of equity partners ÷ Number of all other lawyers = Lawyer leverage ratio
Benefits of Lawyer Leverage
A high lawyer leverage ratio has a number of benefits. They are as follows:
Increases partner income. Having a large number of billable support staff will increase the income of the equity partners, as long as the support staff is billing out at sufficiently high rates to more than cover their employment costs.
Delegate work. The equity partners can delegate more work, thereby allowing them to concentrate on higher-value activities for which they can maximize billing rates.
Reduced write-offs. A high lawyer leverage ratio leads to reduced write-offs, since the equity partners are not charging their high fees on low-value work. Instead, low-value work is delegated to lower-cost staff, whose billings are more acceptable to clients.
Large promotion pool. When there are many lawyers in a firm who are not partners, this represents a large pool of candidates for future equity partner positions.
Terms Similar to Lawyer Leverage
The lawyer leverage ratio is also known as the partner-associate ratio.