Asked and Answered 

By John W. Olmstead, MBA, Ph.D, CMC

Q. We have a six-attorney insurance defense firm in Kansas City. For the last few years, our associate attorney costs have gotten out of control and in some cases, revenues generated by particular attorneys are not even close to where they should be considering their costs. We have one associate attorney who we pay a base salary who only does appellate brief work. He does not like litigation and does a poor job doing our “bread-and-butter” litigation work. We simply don’t have enough appeals to keep him busy. We are paying him a base salary of $100,000 a year. Last year his working attorney fees collected were $110,000. I welcome your thoughts.

A. Obviously, you are losing money on him. An associate being paid $100,000 per year should be generating $300,000 or more if you are looking to make any margin from him. Overall, you should be making 25 percent to 30 percent profit from your associates. Margin from associates is critical in an insurance defense firm. You are not even covering his direct cost, let alone any indirect overhead cost.

I believe you cannot justify this position and should consider eliminating it and outsourcing your appellate work. Many insurance defense and other litigation firms that I work with are outsourcing appellate work to other law firms. There are also solo practitioners and freelance attorneys with appellate expertise who are working as contract lawyers for law firms doing appellate work. Another option is a legal process outsourcing firm.

It is imperative that you do your due diligence and really check out the background, experience, and appellate track record of the firm or individual attorney you are considering. Your short list should only include firms or attorneys that have a proven track record of appellate wins. Talk with some other law firms that are doing this. 

Click here for our financial management topic blog
Click here for our law firm profit improvement blog
Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.