Hiring? Timing is Everything
Hiring new law firm employees can be an essay in anxiety. There’s really nothing more stressful than trying to figure out who to hire, when to hire, and how much to pay.
It’s a delicate balance to strike; additional employees may mean more revenue, but they always mean more expenses and just payroll. The unfortunate reality to running your own law firm is that hiring the wrong person at the wrong time can actually be devastating to your bottom line.
Adding to the stress is the fact that hiring can easily become influenced by emotion and subjectivity. It can be really easy to go out and hire a paralegal or associate because you feel like your practice is doing well. Maybe you received a large verdict or settlement last week and you can’t help but feel like the money is going to keep coming in. Maybe you’re not getting quite as many calls as you’d like, and you assume that bringing in some support will somehow expand your client base.
Whatever the reason, it’s difficult not to allow this important decision to be dictated by emotion or circumstance. So how do you avoid doing that? Is there a way to remove the subjectivity and use a set of defined standards to determine when the time is right for adding staff?
The answer, for me, lies in the numbers. By paying close attention to the revenue your firm is bringing in, analyzed against the number of employees you have, you can get a really clear picture of when it is — and more importantly, when it isn’t — time to bring in some help.
Take your total revenue and divide it by the total number of firm employees; including yourself. The result is your revenue-per-employee (RPE) metric. This figure is a great indicator of when it’s prudent to bring on a new staff member.
Let’s say you and one other attorney just finished your second year together, and you brought in gross revenues of $200,000. Between the two of you, that’s a RPE of $100,000, which is a good starting figure with tons of room for growth.
But now if you’re talking about bringing on a paralegal, your RPE drop from $100,000 to $66,666.66 per full time employee. This reduction is significantly more than minor reduction in revenue-per-employee. Based on these facts, you’re probably better off waiting for increased revenues before hiring that first paralegal
On the other hand, imagine that you’re practicing solo and you just posted a fifth-year revenue of $600,000. Your RPE is $600,000; great work!!! You feel like you’re spread way to thin and you want to hire someone to try sustain the growth your law firm has experienced. Doing so will allow you to take on more work, but it will also reduce your RPE to $300,000. With $300,000 of revenue-per-employee you are likely running a highly profitable practice but are you leveraging your revenue to ensure growth for the future? In this situation, it might be prudent to consider hiring an employee before your revenue suffers as a result of you being spread to thin.
Hiring is always a balancing of interests. It’s important not to overload yourself and your existing staff, but it’s also important to avoid spending resources unnecessarily. As easy as it is to pull the trigger on hiring help when times are good, it’s crucial to make sure that your revenue is sustainable before you do so.
Jared Pierce hung his own shingle right out of law school and has spent every minute since then discovering the joys and difficulties of chasing success. Anyone who has ever met Jared will tell you h