New Karma Partner! + Why firms charge clients $400/hr to train their baby lawyers…

 

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Either I’m embarking on an AFFAIR or Karma Lawyers just signed a NEW PARTNER. We need to stay quiet about our budding “we’re getting serious” relationship.

Imploding my 6 year relationship is 1 way to win readers, but disappointingly (for click-bait reasons), my partner IS a law firm partner.

Here are some tidbits fit to be published…

First, Karma’s new partner is a great lawyer. Adopting a bad lawyer would barely feed a blog post. But let’s get the mandatory compliment out of the way…

Karma’s new partner is leaving a mid-tier firm to arrive here. For those unfamiliar, a mid-tier firm is the sort of firm where lawyers arrive to receive an umbrella AND a fruit basket. 

Imagine leaving all that, for little ‘ole Karma! We aren’t mid tier. This does not mean we’re not good. (We’re awesome.) It means we don’t charge $300 an hour for a graduate’s work.

As covered on our website, our prices get fixed at 2/3 of that. If your writer worked at a mid-tier firm (as friends do), then my charge-out rate would be around $650 per hour.

At Karma we charge $220 / hr for every legal hour no matter the seniority. At the end of the day, the work will need to be a certain high standard, or it won’t go out the door.

And to be candid KL do charge higher for particularly complex transactions where the partners bring broad experience. These would include running an IPO, reverse takeovers, mergers, larger acquisitions, applying for an AFSL, facilitating certain large property trusts and the like. In those cases, we may double our rate or more… but how expensive IS that? 

I did just write that firms like my partners’ charge $300 an hour for their graduate’s work… Second year lawyers are routinely billed at about $400 per hour. 

Breaking down the legal invoice

Let’s break this pricing down for a moment, because it’s instructive. 

Clients go to mid-tier and top-tier firms only for plenty of that proportion of work to get handed to lawyers with almost NO experience to stumble through these matters. 

The same mid-tier firms subsequently invoice, with a straight face, $400 per hour (before GST). This effectively provides a ludicrously well compensated method to give their baby lawyers’ opportunities to learn how to practice law. 

(Lucky clients!!)

Of course we need to monitor our revenues and expenses. We are charging similar prices to a mechanic, and less than plumbers. (Also, we’ll review prices regularly, because we’re not commercial morons.)

We haven’t yet, hit a compelling reason for suggesting our disruptive legal pricing model isn’t sustainable.

Why is he coming?

So why is my partner coming to the modest cache, that’s Karma Lawyers?

There’s a few reasons. He’ll explain them in a blog post himself at some point. From my perspective it’s anchored on a couple points. 

1. We already know we’re a good team. 

Synergy is rare. I don’t mean “synergy” in the prospectus of some complicated financial instrument, designed to separate people from their life savings…. I mean the sort of kinetic energy that good partners bring to work they find exciting.

Synergy in these circumstances can be found anywhere. Two (2) experienced cops on a murder case or 2 programmers with a long history of late nights and Red Bulls… 

When the sum of a team is greater than it’s parts, then it’s tempting to bottle the performance… It’s rare and it’s valuable.

2. My partner helped brainstorm the Karma model – so he’s arriving to equity. 

The mid-tier firm (and the 50 priced just like it), will NEVER offer equity to a lawyer until they’ve completed their 15 years of late nights.

By the way, if this all sounds a little like a Marxist critique, well sue me. These points are as valid as they are obvious. 

And look, I don’t know where that $400 paid on account to a first year lawyers’ work actually goes…

Certainly not to the first year lawyer. 

They may make $80,000. Not a bad salary to start out. Just remember that these people do not work 35 hour weeks. They work 60 hour weeks. Let’s recalculate that hourly rate. Hmmm, yep. That’s around $1440 per week. If it was a 35 hour week, that would be a princely $41 per hour. At 60 hours per week, we have a more modest $24 per hour. Not really $400 is it?

The $376 difference, doesn’t go to the graduate’s boss either. That’s the “Junior Associate”. Junior Associates will make around $110,000. They also work a nice 60 hours a week… and earn $55 per hour… but charging clients $500 per hour. But wait! We are on the Alice-in-Wonderland scale of legal fees and billable hours… So let’s correct course quickly… $32 per hour! 

Stylin!

Where does the big firm money go?

So, the first year lawyer gap wages plus the Junior Associates’ profits per hour aren’t running to ($376 + $468 = $844) straight to their boss…. that’s the Senior Associate. She makes a thoroughly impressive $200,000 – $240,000. 

Charging out at $650 per hour and earning maybe $100 per hour… but remember recalibrating for actual hours employed, and let’s call it $60 per hour.

Anyway, these monstrous gaps between the hours charged e.g. $650, and the lawyers bringing home e.g. $60 per hour – to the husbands they hardly know, and children they rarely see… Now where the hell does all this money go? 

And I don’t mean to bring out the violin for well paid lawyers – but you can’t work 60 hours a week and expect a well rounded home life. (Sure you can pretend to…)

Anyway, after the Senior Associate, THEN you hit a partner and the hallowed equity stakes. 

Given this escalating pyramid of finance… surely the top guys make millions?

In a normal company, they do – or the shareholders do. 

But partners don’t. Equity partners’ make about $600,000 to $800,000 per year. Some of the “kings” at the very top firms make $1.5million per year, but not many. 

The people at the top of this pyramid don’t work more than their lower paid colleagues. It’s physically impossible. Compensating for their eroded ability to stay past midnight, they invariably work weekends. (Wives / husbands usually have either left or read the Riot Act…)

Inefficient & overcharging

So let’s just say it. Law firms are not efficient. They succeed in the modern world via overcharging their clients. (Like being paid $400 per hour to train their junior lawyers how to be lawyers.) 

So, returning to my super-duper secret partner. He held in his hot little paws, a time-limited option to step into Karma and receive real equity… So he took it. I wasn’t confident he would (Remember at the last firm they gave away, FRUIT BASKETS!!!) 

But I’m glad he has. And I want my Legal Ninjas to be exposed to a different style of leader. Anything that lightens my responsibility to my Ninjas and my modestly charged clients is a good thing, because
a. I’m not an egocentric Type A personality; 
b. I’m unburdened by destructive control issues; and
c. I work normal hours.

So WELCOME [name coming soon]!!!!!

PS. If you want myself or my team to work for you until 2am – forget it. Go pay a mid-tier law firm graduate $400 per hour. They’ll accept as much money as you can throw at them… Spend, spend, spend!

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