Management Consulting Case Study-Law Firm Economics

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Case Scenario-
Think about a legal company. At a salary of $100,000 per year, they employ associates fresh out of law school. Is this a decent offer?

Suggested Approach

A profit = revenue minus cost analysis is appropriate in this situation. First, consider the marginal revenue that comes with hiring a new attorney. Begin simply by asking whether the firm has any work for the new attorneys to perform. Assuming "yes," determine the new associate's hourly rate, the number of hours invoiced per day, and the number of days worked per year to obtain an approximate revenue total.

Now consider supplemental expenses. You should also consider taxes, overhead, training, benefits, and any other costs you may think of in addition to compensation. Do not ignore the expense of hiring (amortise these over the average gm. e a new associate will stay with the firm.)

Once you have this fundamental foundation in place, you may add more specifics if you have the time. Other potential issues include the quality of the attorneys you obtain for your $100K (are they above or below market quality? ), the necessity to provide increases in following years, the choice to hire more affordable legal assistants or more seasoned attorneys, etc.

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By Vandana Gaur

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