Lies, Damned Lies and Statistics: Profits Per Partner Calculations

When we graduated and went to our firm from law school, many of us truly believed that there was a realistic chance at partnership at that firm. Some of this was mere self-delusion, but one of the carrots we all may have looked at while feeling the brunt of the stick, was the profit per partner calculation. If we worked hard, were enthusiastic, pro-active about getting work, and a little lucky, we too would join the partnership ranks and have significant earnings to prove to us that it was all worth it.

Ok. Times have changed, and maybe the cool-aid we all drank has become less potent. Also, maybe as I have turned 45 my youthful idealism has been replaced with mid-forties realism, which I hope has not yet turned into mid-life cynicism, yes, some people are starting to think that way…but while working with a partner candidate the other day, we were looking at the ATL PPP rankings, and he shared with me that it was not always the best or most accurate indicator. Ok, he used more colorful language than I want to print here, but I think you may get the point.

According to him, with the advent of FPE partners (fixed and partial equity) the numbers which according to him were somewhat dubious to begin with, have now even lesser relevance.

I myself like a version of the FPE approach, but then again I am somewhat of an odd duck. I think a fixed salary, where a partner also earns a percentage of the work he or she brings into the firm, and then also gets to benefit from the profits of the partnership, could be ideal. Many of my clients are now beginning to use this approach…they will give partners a percentage of what they bring in, a percentage of what they cross-sell, and a percentage of work they handle for the firm, all the while making some kind of contribution to firm overhead and expenses. (IF YOU LIKE THIS, CALL ME!!! I HAVE CLIENTS IN GROWTH MODE WHO ARE LOOKING FOR ALL DIFFERENT PRACTICE AREAS!!!)

Back to the point. You may be asking so what? Well, hypothetically, if a firm were to declare all partners who hold even a small fraction of an equity interest to be “equity partners,” then their profits would appear to be widely shared, and hence, profits per partner would appear to be lower. BUT, if the firm declares only those partners with as close to 100% equity to be “equity partners,” then they will appear more profitable, due to the fewer partners sharing profits. 

So, while I am not advocating the complete elimination pf a profit per partner analysis in your decision on whether or not to consider making a move to another firm, I am reminding everyone of what Mark Train said about statistics, and want you to be as well informed in your decision making as possible.

 

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