It’s inappropriate to compare fully-loaded hourly costs inside to average partner rates outside

I saw this done in a presentation. It’s wrong.

Even if the inside lawyers supervising or working on a matter are as experienced as or more experienced than the law firm’s partners, the comparison ignores the firm’s leverage. Data I developed for a law department shows that roughly 40 percent of the hours billed by its law firms in a certain practice area were partners’ hours, with the remainder split relatively evenly among associates, paralegals, and other timekeepers.

The comparison also elides the higher cost per hour of more senior in-house lawyers or sometimes specialists. It stacks the deck to compare all inside lawyers to only outside partners.

The gap between the inside cost and the average partner cost might be something like $185 to $350, but a fairer comparison of the effective firm billing rate will shrink considerably (See my post of June 13, 2006 that compares the term effective to blended rate.).

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