THE ECONOMIC BENEFITS OF PARALEGAL UTILIZATION D. Jeffrey Campbell, Esq. And the American Bar Association Standing 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 ; Telephone: (312) ; Facsimile: (312) ; ISBN: 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 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 Profitability Entry Level vs. Experienced Paralegal Salary (Compensation) Fringe Benefits (Compensation) Overhead Costs (Direct & Indirect) Total Costs Entry Level $30,000 +9, ,000 $84,000 Experienced $50, , ,000 $110,000 Costs

Comparing Profitability Entry 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 Profitability Entry Level vs. Experienced Paralegal Actual Revenue Total Costs Profit Entry Level $115, ,000 $31,500 Experienced $156, ,000 $46,750 Profit

Comparing Profitability Paralegal vs. Associate Paralegal Associate Salary (Compensation) $40,000$100,000 Fringe Benefits (Compensation)+10, ,000 Direct Costs +2, ,000 Indirect Costs +43, ,000 Total Costs $95,000$224,000 Costs

Comparing Profitability Paralegal vs. Associate Paralegal Associate Hours 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 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 Firm Fixed 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 $ %

Contingency Case Firm Firm Verdict Fee Workers Cost/Hr. Hours Investment Profit ROI $120,000 $40,000 Partner $ $40,500 ($500) (1.2%) $120,000 $40,000 Partner $ $22,500 Paralegal $ $ 8,125 $30,625 $9, %

Improved Client Satisfaction and Retention Reducing Legal Fees

All Work by Lawyer at $200 Per Hour TaskHours Cost Client Interviews 4 $800 Witness Interviews 6 $1200 Responding to Written Discovery12 $2400 Preparing for and Taking Depositions12 $2400 Legal Research 10 $2000 Preparation of Pleadings12 $2400 Trial Preparation16 $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 $17,600Costs 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) $17,600 Cost to Firm -$12,760 Profit = $4,840 Return on Investment 37.9% Scenario 2 $16,410 - $11,519 = $4, %

Increasing Attorney Billing Rates

Example: Lawyer Performs Work At $200/Hr. Task Hours Cost Case Intake 5$1,000 Formal & Informal 40$8,000 Discovery Pleadings & 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: $200 Lawyer 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 Increase 4% Client Cost Reduction Summary Increasing 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