The world of law is a seemingly confusing and cut-throat world. Lawyers are known for being cold, ruthless, and calculating. Because they have to be. In a courtroom, there is little room for error. Especially when you hold another individual’s fate in your hand.
Aside from being a tough field to work in, is it also a very lucrative field. The common image of lawyers is them on the top floor of a skyscraper, sitting in a massive corner office decorated with luxurious ornaments and a decanter filled with the finest scotch.
Shows like Suits definitely play into this idea, glamorizing the field of law and those who practice it. But a common question that we see circulating is this: How do Law Firms actually make so much money?
There are a number of different methods that a law firm uses to turn a profit, and a lot of them are very lucrative. So we are going to dive into each and break it down for you.
The quickest method for any law firm to get a large injection of funds is by securing investors. These investors are non-lawyers who simply want to earn a cut of the firm’s profits for themselves, without doing any legal work.
Like any company, investors buy a percentage of the firm, meaning they are partly an owner. A lot of smaller law-firms will go through the investor route to make sure they still regain control over their firm while still bringing in investor funding.
But what about lawyers who invest in a firm?
If you have watched any legal TV show, you will have heard this term a lot. Partners. Ever notice how most law firms’ names are a collection of the head lawyers’ names? That is what being a partner gets you.
Similar to investing, a partner gets a significant stake in the firm. They become part owners. And with it, their name gets put on the sign. In the legal world, this is a huge mark of honor and status.
But becoming a partner isn’t easy. A random lawyer cant walk into a firm and simply become a partner. Firstly, they have to be invited by the other firm partners and investors. This is why becoming a partner is so important for lawyers, it essentially means you have reached the top of your firm.
But you have to pay. Becoming a partner involves putting up a considerable investment. This amount is significant, reflecting the change in salary and power that lawyers will get with their new position.
This brings in a new wave of funds for the firm, covering their expenditures and allowing them to keep functioning. This doesn’t happen often, so it isn’t a law firm’s main source of income.
There are generally two types of law firms. Those that operate on a case by case basis. And those that work on retainer. A retainer is, simply put, a massive down payment made by a client for legal services.
Much like hiring a car for a week, a retainer is paid upon signing to a law firm and it means that the firm works for you. Any charges you incur from their services are deducted from your retainer.
This is a favorable method of income for a lot of firms. It provides the firm with a solid cash injection all at once. And for a lot of clients, such as massive corporations or powerful celebrities, they will blow through their retainer quickly and continually top it up, providing a constant source of income for the firm.
This is the most common and well-known method for a law firm to make money. Legal fees. When you hire a lawyer from firms like Boise DUI you are paying for their legal services. Most people assume you have to have a lawyer represent you in court, but this isn’t true. You are allowed to represent yourself. This is how lawyers get away with charging a premium.
A lot of firms operating on the public level will offer what is called ‘No-Win No-Fee’ which essentially means you don’t pay them anything unless you win the case. When that happens, they often take a percentage of your pay-out from the case.
A lot of firms adopt this method as it brings in a lot of clients who need help but can’t afford it. It also puts their firm in a positive light, which is a fantastic marketing strategy.
As a side note, not all lawyers will work for a private firm. Some will work for companies directly, in their legal department. And others will work for the state.
You will have seen in most TV shows when someone is assigned a lawyer for their case, or the district prosecutor goes up against someone on behalf of the state. These lawyers get paid by the entity that hires them and most of these entities will get their funding from more traditional methods.
So, there you have it. Law firms are no different from most businesses. They have a variety of methods available to them to turn a profit. The big difference is their line of work is complex, rigorous, and stressful. Being a lawyer is tough. But the rewards for it are numerous.
We hope this guide has given you some insight into the amazing world of law.