I received a call from a lawyer wanting to know what percentage of his gross revenue should be allocated to rent and whether his percentage was in line with other law firms. I cited one study that put the average at 9 percent, but his comeback was that another consultant said the average was 12 percent. Such generic numbers totally miss the point on two levels. First, they allow lawyers to think that they need not try to do better than the average. And second, they obscure the point that the cost of office space is a statement about the law firm itself, raising issues that should be addressed in a strategic plan.
In fact, whether you have a solo, small firm or larger firm practice, the lease for the office space where you work is a planning tool in itself. If your lease expires within the upcoming two years, it is an unsurpassed opportunity to assess your future direction. The questions raised by a lease expiration go to the heart of whether you want to stay where you are – physically and in terms of your career – or move in an entirely new direction. Your new direction could be to quit your firm and start a solo practice, change firms, reinvigorate your current firm with more energy and resources, or leave practice altogether.
There are four ways to answer the questions that an expiring lease poses for your practice, all of which will help you define what your business is and create alternatives for what it should be:
1) Take a macro view and analyze the economics of the firm (revenues, expenses, profitability) within the context of the current lease expense.
2) Take a micro view and analyze the economics of your own practice and book of business, and whether they are sustainable under current conditions.
3) Assess your colleagues from the standpoint of whether you like who you work with and want to continue to do so, even if there were better opportunities elsewhere.
4) Assess yourself, from the standpoint of whether assuming the risk of a new solo practice, or relocating your current practice, after the lease expires is something you really want to do.
These issues and questions lead to a far more complex analysis than a simple answer to the question of how much a lease should be. Is your rent competitive for your geographic area? Is your current physical location one that you, your clients and prospects are comfortable with? Would you improve the quality of your professional life by moving to better appointed quarters, and can you afford it? Would your current and prospective clients think more of you if you had better quarters, asking you to take on better cases and charge more for them?
Whether the answers to these questions mean that you pay 13 percent of revenue for rent, or move to cheaper quarters, then so be it. The important point is to look at rental costs from the perspective of your own practice – what you expect in revenues, what you can afford, and what direction you want your practice to go in the physical environment where you spend most of your waking time. Then you can make conscious choices consistent with your firm culture and goals.