Profitability
Matter and client profitability analysis — understand exactly which work makes money and which doesn't.
Overview
Not all legal work is equally profitable. A fixed-fee conveyancing matter that takes twice as long as expected returns half its intended margin. A large commercial litigation matter that settles on the eve of trial may have consumed enormous resources against a brief billing period. Without analysing profitability at the matter level, firms make decisions based on revenue — what they billed — rather than profit, what they actually made after accounting for the cost of doing the work.
The Profitability module analyses every matter's billed amount, collected amount, labour cost (calculated from hours worked at each attorney's cost rate), and derives the profit margin and realization rate. This data drives decisions about pricing, matter type selection, fixed-fee structures, and which practice areas the firm should grow or deprioritise.
Key Profitability Metrics
Billed Amount
The total fees invoiced to the client for this matter. Does not account for write-offs, discounts, or uncollected invoices.
Collected Amount
The total fees actually received. The gap between billed and collected reveals write-offs and outstanding debt. Collected is the true revenue figure.
Labour Cost
The internal cost of the work done, calculated from each team member's hours logged multiplied by their internal cost rate. Set staff cost rates under Organisation → Staff Profiles.
Profit Margin
Collected amount minus labour cost, expressed as a percentage of collected. Example: collected $10,000, labour cost $6,000 = 40% profit margin.
Realization Rate
Collected amount as a percentage of billed amount. A realization of 85% means 15% of what was billed was written off or remains uncollected. Industry benchmark is typically 85–95%.
Matter Type & Status
Filter profitability by matter type (Litigation, Conveyancing, Corporate, etc.) and status (Active, Closed) to identify which categories are most and least profitable.
Firm-Wide Summary
The summary panel shows four firm-wide metrics across all matters in the selected view:
Using Profitability Analysis
Open Profitability
Click Profitability in the sidebar under Firm Operations. The matter list loads sorted by profit margin (highest first) by default.
Filter by matter type and status
Use the matter type and status filters to focus your analysis. To understand fixed-fee profitability: filter to your fixed-fee matter types and sort by margin. To find unprofitable active matters: filter to Active status and sort by margin ascending.
Identify outliers
Look for matters with very low or negative margins — these represent work being done at a loss. Investigate whether the pricing was wrong, the scope expanded without a costs variation, or time was not being captured accurately. Each is a different problem with a different solution.
Benchmark by matter type
Filter to a single matter type and compare margins across matters in that category. This reveals whether the low-margin problem is systemic (the pricing model for this type is wrong) or specific (one matter was badly managed).
Set cost rates for accuracy
The profitability calculation requires staff cost rates to be set. Without cost rates, labour cost shows as zero and margins appear artificially high. Set cost rates (annual salary ÷ available hours, adjusted for on-costs) under Organisation → Staff Profiles → Cost Rate.
Export for partner meetings
Click Export to download profitability data as a CSV. The exported data includes all metrics per matter and is suitable for partner profit-share discussions and annual business reviews.
Interpreting profitability data correctly
- • Profitability data is only as good as the time entry data behind it. Firms with poor time capture will see inflated margins because the labour cost denominator is understated. Fix time entry discipline before drawing strategic conclusions from margins.
- • A low realization rate (below 80%) is a more immediate problem than a low margin. Low realization means you are either writing off too much or have collection problems — both require process intervention, not pricing changes.
- • Compare like with like. A large commercial matter running for two years will have a different margin profile than a 3-day conveyancing. Segment by matter type before drawing cross-matter conclusions.
- • Use profitability data to price fixed-fee work accurately. If your conveyancing matters average 8.5 hours at a $120 cost rate = $1,020 labour cost, and your fixed fee is $990, you are losing money before overhead. The data makes this visible.
Frequently Asked Questions
How is labour cost calculated?
Labour cost = hours logged on the matter by each attorney × their individual cost rate. Cost rates are set per staff member under Organisation → Staff Profiles → Cost Rate. If no cost rate is set, that person's time shows as zero cost. Set cost rates for all fee-earners to get accurate margin calculations.
Why is the realization rate below 100%?
Realization below 100% means some invoiced amounts have been written off or remain unpaid. Write-offs happen when: the client disputes an invoice (partial write-off), the firm reduces a fee as a professional courtesy, or the invoice is marked as bad debt. Check the Billing module for write-off and bad debt records on any matter with a low realization rate.
Can I see profitability by attorney rather than by matter?
Matter-level profitability is the primary view. For attorney-level profitability (the margin generated by each attorney's matters), use the Analytics module → Attorney Performance view, which aggregates matter profitability by responsible attorney.
Does Profitability include disbursements?
The current profitability calculation focuses on fee revenue and labour cost. Disbursements (court filing fees, expert witness fees, search fees) are typically pass-through items that do not affect profitability and are excluded from the margin calculation. Disbursement tracking is available in the Billing module.