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NIPP and tuck: law department lawyers ought to care about law firm profitability

Net Income Per Partner (NIPP) depends mostly on hourly rates and hours billed (Richard Gary, Law Firm Inc., Vol. 4, Jan./Feb. 2006 at 25). Law firms seek to increase both; law departments ought to worry about increases, and indeed, some would say, ought to take a tuck out of them.

High hourly billing rates for junior associates can mean they may be priced above the value they deliver (See my posts of Feb. 8, 2006 about such complaints and Jan. 20, 2006 on probing the ratio between associate costs to firms and their revenue.)

Pressures to bill high numbers of hours invidiously inflate clients’ bills. Worse, even assuming lawyers actually work those 2,000-plus chargeable hours, during all those mind-numbing hours can they think and produce effectively?

And leverage, the alchemist’s stone for partners’ seven figure NIPPs, is also problematic for law departments. Leverage not only lures firms to over-staff matters – got to keep the serfs toiling – it also dilutes the quality of legal work, since leverage nudges experienced partners to pass work to others who are less experienced.

At its root, highly profitable law firms achieve that much-publicized status by providing services over time that many clients value. Quality, service, and value lead to lofty billing rates, leverage, and capacious hours billed, not the other way around. Still, law departments ought to consider whether any part of these economics they can NIPP in the bud.