THE ECONOMIC BENEFITS OF PARALEGAL

UTILIZATION

D. Jeffrey Campbell, Esq. And the

American Bar AssociationStanding Committee on Paralegals

Copyright ©2005 American Bar Association

All rights reserved. The American Bar Association grants permission for reproduction of this document, in

whole or in part, provided that such use is for informational, non-commercial purposes only and any copy of the

materials or portion thereof acknowledges original publication by the American Bar Association and includes

the title of the publication, the name of the authors, and the legend “Copyright ©2005 American Bar

Association. Reprinted by permission.” Requests to reproduce materials in any other manner should be

addressed to: Copyrights & Contracts Department, American Bar Association, 321 North Clark Street, Chicago,

Illinois 60610-4714; Telephone: (312) 988-6102; Facsimile: (312) 988-6030; E-Mail: copyright@abanet.org.

ISBN: 1-59031-387-9

The materials contained herein represent the opinions of the authors and editors and should not be construed to

be those of the American Bar Association unless adopted pursuant to the bylaws of the Association. Nothing

contained herein is to be considered as the rendering of legal advice for specific cases, and readers are

responsible for obtaining such advice from their own legal counsel. These materials are intended for

educational and informational purposes only.

Produced by the ABA Standing Committee on Paralegals.

NOTE: PRESENTERS OF THESE MATERIALS ARE RESPONSIBLE FOR COMPLETING ANY

APPLICATIONS FOR CONTINUING EDUCATION CREDITS.

ACKNOWLEDGEMENTS

The Standing Committee on Paralegals would like to acknowledge the generous contributions of D. Jeffrey Campbell, Esq. and the firm of Porzio Bromberg & Newman, P. C. to this product. Mr. Campbell was a member of the American Bar Association Standing Committee on Paralegals from 2000 to 2004, serving as chair of the Standing Committee from 2002 to 2004. He is a frequent author and speaker on the topic of paralegal utilization, having previously presented at seminars for the American Bar Association, the New York Bar Association, the New Jersey Bar Association and the Legal Assistant Management Association.

Mr. Campbell is the managing principal of Porzio, Bromberg & Newman and resident in its Morristown, New Jersey office. His practice encompasses the areas of product liability, toxic tort and insurance coverage litigation. He has particular expertise in the coordination of multi-case, multi-party, multi-jurisdictional litigation.

These materials were utilized in a panel presentation during the 2005 American Bar Association Annual Meeting in the course of the General Practice, Solo & Small Firm Section’s Solo Day activities.

Five Advantages to Paralegal Utilization

• Increased Firm Leverage• Improved Firm Profits• Improved Return on Investment• Improved Client Satisfaction and Retention• Improved Lawyer Quality of Life

Five Prerequisites to Paralegal Profitability

• Selecting the Appropriate Person• Assigning the Proper Work• Involving the Paralegal as a Team Member• Conferring Trust in the Paralegal• Pricing the Work Properly

Analyzing the Profitability of

Paralegal Work

Evaluate Costs:• Compensation Costs

– Salary, Bonus, Payroll Taxes and Fringe Benefits

• Direct Costs– Allocated portions of Rent and Secretarial Support

• Indirect Costs– Supplies, Technology, Utilities, Social Activities,

Insurance, Business Taxes, Compensation Costs of Non-Billing Personnel

Partners account for three times as much general overhead cost, and associates twice as much, as do paralegals.

Typical Paralegal Costs

Salary (Compensation Cost) $40,000

Taxes & Fringe Benefits (Compensation Cost) + 10,000

Allocated Space (Direct Cost) + 2,000

General Overhead (Indirect Costs) + 43,000

Total Cost of Paralegal $95,000

Cost Per Hour

Total Cost Billable Hours = Cost Per Hour

Example

$95,000 1550 = $61.29

Estimate Revenues:

Revenue Potential

Hourly Rate x Anticipated Billable Hours = Revenue Potential

Example

$90 x 1,550 = $139,500

Estimate Revenues:

Actual Revenue

Revenue Potential x Collection Realization Rate = Actual Revenue

Example

$139,500 x 92.5% = $129,000

Profit

Actual Revenue – Costs = Profit

Example

$129,000 - $95,000 = $34,000

Comparing ProfitabilityEntry Level vs. Experienced

Paralegal

Salary (Compensation)

Fringe Benefits (Compensation)

Overhead Costs (Direct & Indirect)

Total Costs

Entry Level

$30,000

+9,000

+45,000

$84,000

Experienced

$50,000

+15,000

+45,000

$110,000

Costs

Comparing ProfitabilityEntry Level vs. Experienced

Paralegal

Hours

Hourly Rate

Potential Revenues

Realization Rate

Actual Revenue

Entry Level

1,600

x $80

$128,000

x 90%

$115,200

Experienced

1,500

x $110

$165,000

x 95%

$156,750

Revenue

Comparing ProfitabilityEntry Level vs. Experienced

Paralegal

Actual Revenue

Total Costs

Profit

Entry Level

$115,200

- 84,000

$31,500

Experienced

$156,750

- 110,000

$46,750

Profit

Comparing Profitability Paralegal vs. Associate

Paralegal Associate

Salary (Compensation) $40,000 $100,000

Fringe Benefits (Compensation) +10,000 +15,000

Direct Costs +2,000 +29,000

Indirect Costs +43,000 +80,000

Total Costs $95,000 $224,000

Costs

Comparing Profitability Paralegal vs. Associate

Paralegal Associate

Hours 1550 1850

Hourly Rate x $90 x $160

Potential Revenues $139,500 $296,000

Realization Rate x 92.5% x 92.5%

Actual Revenue $129,000 $273,800

Revenue

Comparing Profitability Paralegal vs. Associate

Paralegal Associate

Actual Revenue $129,000 $273,800

Total Costs -95,000 -224,000

Profit $34,000 $49,800

Profit

Return on Investment*

Profit Cost to Firm = Efficiency (ROI)

Example: Associates

$49,800 $224,000 = 22.2%

Example: Paralegals

$34,000 $95,000 = 35.8%

*Daniel Ray, “Finding Balance: Utilizing Legal Assistants to Maximize Your Firm’s Efficiency and Profitability.”

Profitability in Alternate Fee Matters

Fixed Fee Case

Firm FirmFixed Fee Worker Hours Cost/Hr. Investment Profit ROI

$1000 Partner 5 hrs. $225 $1,125 ($125) (11.1%)

$1000 Associate 7 hrs. $135 $945 $55 5.8%

$1000 Partner 1 hr. $225 $225

Paralegal 9 hrs. $65 $585

$810 $190 23.5%

Contingency Case

Firm FirmVerdict Fee Workers Cost/Hr. Hours Investment Profit ROI

$120,000 $40,000 Partner $225 180 $40,500 ($500) (1.2%)

$120,000 $40,000 Partner $225 100 $22,500

Paralegal $65 125 $ 8,125

$30,625 $9,375 30.6%

Improved Client Satisfaction and Retention

• Reducing Legal Fees

All Work by Lawyer at $200 Per Hour

Task Hours Cost

Client Interviews 4 $800

Witness Interviews 6 $1200

Responding to Written Discovery 12 $2400

Preparing for and Taking Depositions 12 $2400

Legal Research 10 $2000

Preparation of Pleadings 12 $2400

Trial Preparation 16 $3200

Trial 16 $3200

Total 88 $17,600

Work Delegated to Paralegal at $90 Per Hour

Task Timekeeper Hours Cost

Client Interviews: Lawyer 4 $800 Paralegal 4 $360

Witness Interviews: Lawyer 2 $400 Paralegal 6 $540

Responding to Discovery: Lawyer 2 $400 Paralegal 14 $1260

Prep. for and Taking Deps.: Lawyer 6 $1200 Paralegal 7 $630

Work Delegated to Paralegal at $90 Per Hour (Cont’d)

Task Timekeeper Hours Cost

Legal Research: Lawyer 2 $400 Paralegal 12 $1080

Preparation of Lawyer 2 $400 Pleadings: Paralegal 14 $1260 Trial Preparation: Lawyer 8 $1600 Paralegal 16 $1440

Trial: Lawyer 16 $3200 Paralegal 16 $1440

Total: 131 $16,410

Reducing Legal Fees:Cost to Client

Scenario 1

Lawyer Works 88 Hours

Scenario 2

Lawyer Works 42 Hours

Paralegal Works 89 Hours

Client Saves $1,190, or 6.8%

Costs Client $17,600 Costs Client $16,410

Reducing Legal Fees: Cost to Firm

Scenario 2

Lawyer Works 42 Hours at $145/hr.

Paralegal Works 89 Hours at $61/hr.

Total Cost to Firm = $11,519

Firm Saves $1,241 or 9.7%

Scenario 1

Lawyer Works 88 Hours at $145/hr.

Total Cost to Firm = $12,760

Reducing Legal Fees:Profit & Return on Investment

Scenario 1

Revenue (Client Cost) $17,600Cost to Firm -$12,760Profit = $4,840Return on Investment 37.9%

Scenario 2

$16,410 - $11,519 = $4,891 42.5%

Increasing Attorney Billing Rates

Example:Lawyer Performs Work At $200/Hr.

Task Hours Cost

Case Intake 5 $1,000

Formal & Informal 40 $8,000DiscoveryPleadings & Research 40 $8,000

Trial & Resolution 20 $4,000

Total 105 $21,000

Lawyer Works At $220/Hr.Paralegal Works at $90/Hr.

Task Hours Cost

Case Intake Lawyer 5 $1,100 Paralegal 5 $450

Formal & Informal Discovery Lawyer 20 $4,400 Paralegal 30 $2,700

Pleadings & Research Lawyer 20 $4,400 Paralegal 30 $2,700

Trial & Resolution Lawyer 20 $4,400

Total 130 $20,150

Scenario 1

Lawyer Rate: $200Lawyer Works 105 Hrs.

Client Cost of $21,000

Scenario 2

Lawyer Rate: $220

Lawyer Works 65 Hrs.

Paralegal Rate: $90

Paralegal Works 65 Hrs.

Client Cost of $20,150

10% Rate Increase4% Client Cost Reduction

SummaryIncreasing Attorney Billing Rates

Improved Client Satisfaction and Retention

• Reducing Legal Fees

• Improving Service

Improve Lawyer Quality of Life

The Destructive Impact of Turnover

• Reduction in Client Service

• Lost Billings

• Increased Administrative Burden

• Out-of-Pocket Expenses