High partner rates should not distract us from the fundamentals of departmental and law-firm costs

Very roughly, fully-loaded inside lawyers in the US cost their companies about $200 an hour as a fixed cost. As roughly, the effective rate paid outside counsel reaches about $300 an hour, a premium in the vicinity of 50 percent for that variable service (See my posts of Nov. 16, 2005 on fully-loaded costs per lawyer hour; Jan.10, 2006 that offers an estimate of $150-170 an hour; Oct.18, 2005 on calculating a fully-loaded cost per lawyer hour; and Aug. 14, 2006 with its estimate of $270 an hour outside.)

It distorts our judgment to get caught up in the stratospheric rates ($1,000 an hour!!) of some prominent partners. Look at the mix of time charged to a matter by various lawyers and rely more on the effective rate for a matter (See my posts of June 13, 2006 and its comparison of blended and effective billing rates; Sept. 10, 2005 and Oct. 25, 2007 on the correlation of rates to firm size; and Dec. 28, 2006 on differentials between partner and associate rates.). Then give thought to the gap between your internal lawyers’ costs and your external law firms’ costs.

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