Law firms are much richer than individual lawyers, but why is this? What factors make firms more profitable than individual lawyers? The answer is in the shared overhead of lawyers, which has a lot to do with efficiency. The cost of associates, for instance, is now well over $150,000, and productivity of lawyers is falling. As a result, law firms cannot justify the financial burden of underutilized lawyers.
In addition, lawyers often do not look for meaning in their work, but this desire is universal among people from different backgrounds. Many of us would love to work for a company that stands for a certain value. But law firms may not be able to fulfill such hopes because of intense business pressures. As a result, lawyers may have to sacrifice meaning to remain financially successful. So, how do we know whether law firms are truly making a profit?
First, let’s look at the costs of running a law firm. Firms incur costs such as rent and insurance. They also have non-income-generating staff that costs money. These costs go beyond the salaries of individual lawyers. In other words, law firms have to spend money on technology, utilities, and office supplies. The result is a huge overhead for a single lawyer. And the costs of running a large firm aren’t spread across the firm’s entire workforce.
Lawyers also get tax breaks and write the majority of the nation’s laws. Many lawyers take advantage of these loopholes and make more money than their individual colleagues. But even if this doesn’t make them more wealthy, lawyers tend to make a much higher income than average Americans. That’s because lawyers charge their clients more than individual lawyers do. This is how large law firms make their money.