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1ceman

When to Ask for A Percentage of Billings

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Hi everyone, 

I've been working in the GTA for a boutique business firm for about 18 months (2018 call). As of now, I'm labeled as the firm's  "Litigation Associate", although I like to think that I have become the front-line lawyer for all things litigation; my principal (who is fantastic) has become more of an overseer. I draft the materials (motion records, facta, pleadings, etc.), and she reviews when I ask for her opinion. It's clear that she is gradually removing herself the day-to-day operation of the firm, especially on the litigation front.

It's a great relationship, but more responsibility than I envisioned when I first joined the firm. When it comes to litigation, the files range from employment/wrongful dismissal, to construction lien files, to shareholder disputes. The diversity is great as no file is the same, but with that comes added stress. I'm now attending mediations on my own, as well as discoveries, opposed motions, etc. A great experience, but the learning curve has been steeper than I planned. Doing solely barrister work is also starting to take a toll, and I would like to delve into more solicitor work in 2020. For me, balance is key, and litigation alone is not a sustainable practice. I also feel like a more diverse CV will also bode well if I choose a different career path (i.e. in-house) down the line. 

Like I said, I have a great setup at the moment. My boss is an excellent mentor and I enjoy working in my hometown. However, my performance review is coming up in the next few months and I was wondering if now is the time to ask for a percentage of my billings. Currently I'm earning a straight salary of $80K (which was bumped up from $75K after 6 months). As we know, life is expensive and my wife and I will likely be expanding our family in the near future. For that reason, I want to figure out a way to maximize my earnings without giving in to a higher downtown salary.

Would you  recommend just a salary increase (i.e. $90K), or is now the time I propose a percentage of my billings as well? Any experience on billing sharing schemes, particularly in boutique setups, would be much appreciated. I want to make sure anything I propose is reasonable, considering my experience, etc.

Thanks all!

1M

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So how much are you bringing in in terms of billings right now?

The most common formula I've heard of is that your billings gets split three ways: one third to you, one third to cover your overhead, and one third to the partners.  After some threshold when your overhead is covered, the split can then move to 50%.  Now obviously though there can be a million different variations, and different percentages.

So the obvious question is: do you think you're billing in excess of $240k right now?  If you are I can't see why you wouldn't want to go to a percentage.  Your partners would probably prefer it as well, since that eliminates the risk of them being under water in terms of your salary.

The risk though is after only 18 months you still might not be profitable to the firm yet.

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1 minute ago, Malicious Prosecutor said:

So how much are you bringing in in terms of billings right now?

The most common formula I've heard of is that your billings gets split three ways: one third to you, one third to cover your overhead, and one third to the partners.  After some threshold when your overhead is covered, the split can then move to 50%.  Now obviously though there can be a million different variations, and different percentages.

So the obvious question is: do you think you're billing in excess of $240k right now?  If you are I can't see why you wouldn't want to go to a percentage.  Your partners would probably prefer it as well, since that eliminates the risk of them being under water in terms of your salary.

The risk though is after only 18 months you still might not be profitable to the firm yet.

Absolutely I would be billing in excess of $240K right now. At the moment my hourly rate is $225. Because of my learning curve some of my hours are discounted, but not a significant amount. I would say I am billing around $300K.

There is only one "partner", and I don't think she has ever done a profit-sharing model with any of her previous lawyers. However, I did mention it to her when I first started and she seemed open to exploring the option eventually, but we didn't get in to how it would work.

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I forgot my usual warning: be careful about taking business advice from a civil servant.

This is something you can't assume - you need to know.  Ask to find out your total billings once business year end comes up.  Then take that to your boss.

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3 minutes ago, 1ceman said:

Absolutely I would be billing in excess of $240K right now. At the moment my hourly rate is $225. Because of my learning curve some of my hours are discounted, but not a significant amount. I would say I am billing around $300K.

There is only one "partner", and I don't think she has ever done a profit-sharing model with any of her previous lawyers. However, I did mention it to her when I first started and she seemed open to exploring the option eventually, but we didn't get in to how it would work.

Are your billings business you have brought in or are they people who come to the firm because of a past relationship with the owner of the practice?

If it is the former than you can ask for a percentage, if it is the later I don't think you deserve one. 

 

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14 minutes ago, OWH said:

Are your billings business you have brought in or are they people who come to the firm because of a past relationship with the owner of the practice?

If it is the former than you can ask for a percentage, if it is the later I don't think you deserve one. 

 

It's the latter, but I would think plenty of associates have a percentage arrangement regardless of whether the billings are from existing clients or not, no?

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19 minutes ago, Malicious Prosecutor said:

I forgot my usual warning: be careful about taking business advice from a civil servant.

This is something you can't assume - you need to know.  Ask to find out your total billings once business year end comes up.  Then take that to your boss.

Good point. FYI my principal asks for my input before billing on my files. It's usually my signature on the bill, but would be a good idea to review all billings so I have a number in mind.

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There is never too early of a time to propose a fee split (though, junior lawyer likely doesn’t want to be on pure fee split right away). 

 

That said, simply being on a fee split doesn’t mean more compensation automatically. It can be easier to negotiate a higher possible compensation through fee split though because the employer isn’t taking on more risk, but you still need to bill the hours.

 

Edited by Coolname

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38 minutes ago, Coolname said:

There is never too early of a time to propose a fee split (though, junior lawyer likely doesn’t want to be on pure fee split right away). 

 

That said, simply being on a fee split doesn’t mean more compensation automatically. It can be easier to negotiate a higher possible compensation through fee split though because the employer isn’t taking on more risk, but you still need to bill the hours.

 

Thanks, Coolname.

I'm definitely not considering a pure fee split right now. I was thinking of either keeping my current salary and asking for a fee split, or negotiating a raise (i.e. $90K) and bringing up the fee split at my 2021 performance review.

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Be sure of your numbers. Your firm may have lowered some numbers come billing time if they felt too many were spent on a file. Your billing shouldn't reflect expensive disbursements recovered that inflate your numbers.You may also want to verify what has been collected as well.

Having these numbers in hand will help you figure out what an appropriate salary might be. 

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5 hours ago, artsydork said:

Be sure of your numbers. Your firm may have lowered some numbers come billing time if they felt too many were spent on a file. Your billing shouldn't reflect expensive disbursements recovered that inflate your numbers.You may also want to verify what has been collected as well.

Having these numbers in hand will help you figure out what an appropriate salary might be. 

Good point. I'm fairly confident that final billing on most of my files rests with me, but it would be wise to make sure.

The more I think about it the more I feel like waiting another year before having this conversation makes the most sense...

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1 hour ago, 1ceman said:

Good point. I'm fairly confident that final billing on most of my files rests with me, but it would be wise to make sure.

The more I think about it the more I feel like waiting another year before having this conversation makes the most sense...

If it were me, I would argue for a raise equivalent to 1/3 of your receipts (less disbursements), then reevaluate if you’re still there in 12 months.  

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Echoing @artsydork  re being sure of your numbers (which should be readily available to you, even at a small firm).

But if your net collected billings are in fact north of $300k, then I'd say some kind of adjustment is in order. Base salary with bonus topping up to something resembling 1/3 is still a good starting point.

As far as fee splits for associates go, I've known a couple new calls who take 40% of net collected billings, but these have been in situations where there was no base salary at all.

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Similar but different situation for me. Same year call as OP, have been at current firm since my call. My law office has been here (the same physical location, even) for about forty years and my employer lawyer has been a sole practitioner for almost all of that time. Now its just him and me + support staff. It's purely a solicitor practice that bills almost exclusively on a flat rate basis. 

I am the lawyer of record on the vast majority of files. The old employer lawyer still works a lot but spends his time maintaining existing relationships, doing office management tasks, and believe it or not more administrative file work (seems to enjoy the routine, putting together certain files, doing bank runs, etc.) Of course he still handles some files himself and some of the non-legal tasks are higher level things like the books. I think employer lawyer prefers coming to work full time to staying home and being retired. He's widowed, is friends with a lot of the older real estate agents, mortgage brokers, other people in the community, and of course other older lawyers.

A good chunk of clients are repeat clients or people that know the law office because it has been here for ~40 years with my employer lawyer's name on it. Employer lawyer owns the building we are in. It takes a lot of time to become entrenched enough in the local community that a practice based mostly on doing residential real estate transactions at volume can be successful. Realistically I think I would need to exist in this role in the community and do a decent job for several more years, maybe even 5 or 10, before most of the files start coming in with my name on them, and that may never happen as long as employer lawyer is still here.

I am paid a decent enough salary with no share of the profits. I like the work environment and there is ample opportunity to grow and learn through the amount of responsibility I have. The outspoken long-term plan is for the practice to become mine: we have talked about changing the practice name in a couple of years to incorporate my name. We have talked about my employer lawyer dropping down to part-time a couple of years after that, which would last a handful of years before he rides off into the sunset. This is all loose and hypothetical but, I think, honestly spoken to. It's the fairly common situation of senior lawyer hires new lawyer as their retirement and transition plan. 

Of course I want more money. I am doing the lawyer work on almost all of our files. Clients like me, the employer lawyer really likes me. I am also finding that without a split of profits I am losing a certain amount of my motivation to get certain types of files done quickly, finish and bill miscellaneous files, rope in certain types of clients, etc. as it makes no direct and short-term difference to me. I don't know when the employer lawyer will actually hand things over or retire - it could be two years or ten years. Our relationship could also deteriorate for some unknown reason and it might never happen. 

I'm not naive though. Even though I am the lawyer of record and doing the lawyer work on most files, most of those files are more or less delegated to me.  Most clients exist and come here because of what my employer lawyer has done over time. From my understanding the employer lawyer is probably taking home about twice as much money at the end of the day as my salary, which is perhaps not as big of a disparity as you see within most firms/partnerships between an associate and the partner/owner. 

Option A is then: wait it out and stay the course, get incremental raises, keep the relationship good, it's likely that eventually it will just be my sole practice and I'll be in a very good position.

Option B: bring up the compensation subject now and try to negotiate a share of the profits sooner rather than later.

Option C: focus not on the compensation as much as the transition; try to formalize the practice transition process now. 

 

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I briefly scanned this thread and I'm not sure whether anyone has said this yet so here it goes:

Remember - if you're doing a fee split (or proposing one) often those arrangements are based upon fees collected not billed. Often, even with good paying clients, these are not collected for 3-4 months after the bills go out. Make sure you're clients are actually paying up before you go with the proposal and be cognizant of how long you might have to wait before you see this increase in your pocket (i.e. the length of time it will take for the bill to be collected). Otherwise just a straight salary increase might be the way to go. 

 

 

 

 

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1 hour ago, BringBackCrunchBerries said:

I am paid a decent enough salary with no share of the profits. I like the work environment and there is ample opportunity to grow and learn through the amount of responsibility I have. The outspoken long-term plan is for the practice to become mine: we have talked about changing the practice name in a couple of years to incorporate my name. We have talked about my employer lawyer dropping down to part-time a couple of years after that, which would last a handful of years before he rides off into the sunset. This is all loose and hypothetical but, I think, honestly spoken to. It's the fairly common situation of senior lawyer hires new lawyer as their retirement and transition plan. 

There's a couple of, not quite warning signs, but things to be wary of in this scenario.

First of all your employer may talk about retiring, but if his whole social life is wrapped up in being a lawyer he may find that he doesn't want to do it.  Or that he keeps putting it off.

Second, if your employer does plan on retiring, he almost certainly expects you to buy him out.  And that includes not only the physical assets (how much do you want to own a 40 year old office building), but all the associated goodwill.  It's also possible that this fellow counts on his practice as being his retirement savings, and he may have an unrealistic idea of its value.

I'm really not the best one to give this kind of advice, but my thoughts that as a 2018 call it's a bit presumptuous to start asking your employer to start transitioning the firm now.  You're still very, very new at this!  I think the better idea would be to either look at raises, some kind of profit sharing, (or the middle ground - guaranteed bonuses of billings above a certain amount), then have the succession conversation in a couple of years.

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13 hours ago, QuincyWagstaff said:

If it were me, I would argue for a raise equivalent to 1/3 of your receipts (less disbursements), then reevaluate if you’re still there in 12 months.  

Thanks Quincy. I can't see my employer agreeing to a raise equivalent to 1/3 of my receipts...that would effectively double my income. Maybe I'm misunderstanding the math?

6 hours ago, Mountebank said:

Echoing @artsydork  re being sure of your numbers (which should be readily available to you, even at a small firm).

But if your net collected billings are in fact north of $300k, then I'd say some kind of adjustment is in order. Base salary with bonus topping up to something resembling 1/3 is still a good starting point.

As far as fee splits for associates go, I've known a couple new calls who take 40% of net collected billings, but these have been in situations where there was no base salary at all.

Again, maybe I'm not understanding the math...

1 hour ago, TheScientist101 said:

I briefly scanned this thread and I'm not sure whether anyone has said this yet so here it goes:

Remember - if you're doing a fee split (or proposing one) often those arrangements are based upon fees collected not billed. Often, even with good paying clients, these are not collected for 3-4 months after the bills go out. Make sure you're clients are actually paying up before you go with the proposal and be cognizant of how long you might have to wait before you see this increase in your pocket (i.e. the length of time it will take for the bill to be collected). Otherwise just a straight salary increase might be the way to go. 

 

 

 

 

I was also thinking a $10K salary increase ($90K total) plus a bonus if I achieve a certain billable target (i.e. 10% of $300K in collected billings). That might be a bit more reasonable, no?

Thanks for all the advice, everyone. Clearly I'm not well-versed in this area.

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12 minutes ago, 1ceman said:

Thanks for all the advice, everyone. Clearly I'm not well-versed in this area.

I think this is true.

Really before doing anything else, try to sit down with your firm's bookkeeper and find out the hard numbers about how much money you're actually bringing into the firm.  Your employer may be hesitant about this!  Emphasize you don't want to see all the numbers (i.e. how much money he or she is making) - just how much you're billing, how much is being written down, and finally how much is being collected.

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2 hours ago, 1ceman said:

Thanks Quincy. I can't see my employer agreeing to a raise equivalent to 1/3 of my receipts...that would effectively double my income. Maybe I'm misunderstanding the math?

Again, maybe I'm not understanding the math...

I was also thinking a $10K salary increase ($90K total) plus a bonus if I achieve a certain billable target (i.e. 10% of $300K in collected billings). That might be a bit more reasonable, no?

Thanks for all the advice, everyone. Clearly I'm not well-versed in this area.

I don't understand your point about doubling your salary. You say your receipts come to $300,000. 1/3 of that is $100,000. You say you are at $80,000 now.

Also, I can't speak to smaller practices, but there is ample discussion in other threads how bonuses are usually paid at larger firms. 10% is commonly thrown around, but that is of salary (i.e. 10% of $90,000, not $300,000).

Bringing it together, the consensus in this thread seems to be that if you are billing around $300,000, then a compensation package of around $100,000 is reasonable. The form of that compensation is what is up for debate.

Edited by JohnStuartHobbes

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