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Accounting and Financial Planning for Law FirmsLJN NewslettersNewsSections

A Review of Realization

By James D. Cotterman
September 30, 2010

Realization is one of three metrics that affect fee revenue in a law firm. Realization in its broadest definition is fees collected divided by the value (traditionally hours ' rates) of the time worked. The other two metrics are utilization (billable hours, or how long one works) and pricing (generally hourly billing rates or what one charges for services).

These metrics affect each other. For example, I had a law firm client that was thrilled with its near-perfect overall realization. Upon examination we discovered that its high realization was due to unbelievably low billing rates, resulting in lost revenue overall. At the other end of the spectrum, large accounting firms often had realization figures in the low 80% range due to routinely large discounts off high retail rates. These are two examples, one unintended and the other planned, where realization is affected by pricing decisions.

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