Billable Hours vs. Profitability — What Really Matters for Law Firm Growth
Busy Doesn’t Always Mean Profitable
Law firms love to track hours. Billable hours are the metric that’s been baked into the profession for decades. But here’s the truth: you can have record-high billables and still have disappointing profitability.
I’ve seen firms with attorneys billing 1,800+ hours a year — yet profits are flat, and partners wonder why. The reason? Hours measure activity, not outcomes. Profitability is driven by a different set of levers.
Where Profits Really Leak (Even When Hours Are High)
1. Realization Rates.
Billing 2,000 hours doesn’t matter if half of it gets written down. I’ve seen firms with realization rates under 80% — meaning for every 10 hours worked, only 8 are billed. Why? Inconsistent write-offs, over-servicing clients, or underestimating scope.
2. Collections Discipline.
Unpaid invoices don’t pay salaries. Many firms send bills but avoid chasing payment to “keep clients happy.” The result: bloated A/R and cash flow crunches. A firm with $500k in receivables isn’t profitable until that money actually lands in the bank.
3. Pricing Models.
Hourly billing isn’t always the problem — inconsistent or poorly scoped flat fees can also contribute to the issues. Firms underprice matters to win clients, but without guardrails, scope creep eats margins. The “fixed fee” becomes a loss leader.
4. Overhead and Utilization.
You can add headcount to keep up with billables — but if attorneys are doing paralegal work or partners are micromanaging admin, your overhead is bloated and margins shrink. The issue isn’t hours, it’s leverage.
The COO Lens: Turning Billables Into Profit
A COO looks beyond raw hours to align operations with true profitability. Here’s how:
Standardize Billing Practices. Create clear policies for discounts and write-offs, so realization rates improve.
Tighten Collections Processes. Install weekly A/R reviews, automate reminders, and tie collections to performance metrics.
Match Work to Roles. Ensure partners focus on rainmaking and strategy, associates on legal work, paralegals on support, and admin on admin.
Review Profitability by Matter. Analyze which practice areas and client types produce the highest margins — not just the highest volume.
Evaluate Pricing Models. Introduce tiered flat fees, blended rates, or hybrid models aligned with actual effort.
An Example From the Field
I once worked with a midsize firm where attorneys were billing more than ever — but profitability hadn’t moved in two years. After digging in, here’s what we found:
Realization was just 78% due to partners writing down time inconsistently.
Over $400k sat in receivables older than 90 days.
Partners were handling routine tasks that could have been delegated.
The firm had taken on flat-fee matters without documenting scope, bleeding hours on “all-in” work. Even worse, they weren’t properly tracking their flat fee time, so tracking their profitability on those matters was basically impossible.
Within 12 months of addressing these issues with clear policies, a collections cadence, and better role alignment, the firm’s profit margin increased by 18% — without adding a single new client.
Billables Are Just One Piece of the Puzzle
Hours are important — but they’re not the end of the story. If you want real growth, you need to zoom out and manage the full profitability picture. That means looking at systems, policies, and roles with fresh eyes.
If your hours are high but profits are flat, you don’t need more work — you need better systems. At ING Collaborations, I help law firms align their operations so every hour billed actually drives profit.