Are you a legal professional? Visit our professional site

Easy Hourly Billing Rate Calculation for Lawyers

Article Placeholder Image
By Casey C. Sullivan, Esq. on July 16, 2015 10:22 AM

You've hung your shingle, now how much do you charge? For many lawyers, figuring out the best billing rate can actually be quite daunting. Do you simply adopt the market rate, charging basically the same as other lawyers in your area? Do you offer a slight discount to make yourself competitive, or do you base your rates on what you think your clientele is willing or able to pay? Or do you just pull a number out of a hat?

However you're setting your billing rates, you could probably be doing it better. Using this simple calculation can help you set an hourly rate that works best for you.

If you picked up a degree in accounting or business management while you were earning your JD, congrats! You've probably fine tuned your firm billing practices a long time ago. If, however, you're like the many lawyers who struggle with numbers and know much more about working in the law than running a business, well -- we're here to help.

Getting Started With Your Billing Rate

Before you can start calculating your needed hourly billing rate, you'll need to gather some information beforehand. First, think of how much you'll need to make, after taxes. This should be enough to cover your housing, food, retirement savings, crippling student debt payments, etc. Consider writing down a high, mid, and low yearly income level that would work for you. Having three numbers will give you more to play with later on.

Second, consider your business expenses. These will be things like your office costs, bar dues, malpractice insurance, IT expenses, salaries for support staff, etc.

Finally, determine how many hours you want to work a week. Note, these are billable hours, so if you typically work 40 hours in order to bill 30, you would enter 30 hours, keeping in mind that your actual work load might be higher. Also, assume that you will be able to actually get business to fill each hour you put down.

Do This Calculation

Now, get ready to calculate. Ha! Just kidding. We have machines to do the numbers for us. If you were to run the calculation, it would look something like this:

( ( Income / .7 ) + ( Expenses * 12 ) ) / ( ( Hours / 5 / 3 ) * 241 )

Thankfully, the folks over at Lawyerist, who put together that equation, have also made an easy online calculator that will find your hourly rate for you. If, say, you wish to make $80,000 a year, with monthly business expenses of $3,000, billing 50 hours a week, Lawyerist says you should bill at least $187 an hour. That rate will also cover two weeks of vacation.

Run the calculation a few times with different numbers. If the hourly rate seems low, think of what clients you could attract with the discount, or if you should raise your rates and work less. Do the opposite if the rate seems high. Spending some time experimenting with different alternatives can give you more numbers to play with when putting together or reevaluating your business plan.

Related Resources: