A quote from the General Counsel Survey 2009 of Belgium-based consultants FrahanBlondé at 37 came from an exasperated general counsel: “They [law firms] have no idea how many of our products we have to sell to pay a bill of €100,000.” That lament started me calculating.
Given a company’s profit margin and cost of external counsel, what revenue per hour does it require to pay that firm? Turn to the back of the envelope. Take a blended rate of outside counsel at $350 an hour and a corporate profit margin of eight percent [The Motley Fool wrote in 2006 that “the average profit margin for corporate America over the last 25 years was approximately 8.3%.”] http://www.fool.com/investing/value/2006/03/01/the-profit-margin-paradigm.aspx
That means for each hour paid to that prototypical law firm, the company has to sell products or services worth something like $4,300 (See my post of May 24, 2005: legal spending as a percentage of profit margin; and May 23, 2007: profit per lawyer may be an under-utilized metric.).