Profits Per Partner Explanation Forum
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Anonymous User
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Profits Per Partner Explanation
Can someone explain profits per partner? I know it's driven by three factors (margin, profitability, and leverage), but what do those three distinct factors mean?
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crouton62
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Re: Profits Per Partner Explanation
In simple terms, PPP=Net operating income (revenue less expenses) divided by the number of equity partners. As for the factors you identified, decreasing margins/overhead obviously increases the profit pool for the partners. You're seeing that now with firms decreasing the amount of office space they're renting and not having as many secretaries per lawyer as they did back in the day.
Profitability itself isn't really a factor of PPP, other than the more profitable the firm, the higher its PPP will be.
Leverage is the ratio of non-equity partner lawyers to equity partners. There are really only two ways a firm can grow revenue: increase billing rates or increase the number of hours billed (i.e. hiring more associates). Some firms have business models predicated on high leverage (having a ton of expendable associates churning hours). While most of the firms with the greatest leverage are not the firms with the highest PPP, there are some exceptions (Paul, Weiss and Kirkland).
PPP is a decent metric of a firm's financial health, but people are starting to focus more on revenue per lawyer (RPL).
Profitability itself isn't really a factor of PPP, other than the more profitable the firm, the higher its PPP will be.
Leverage is the ratio of non-equity partner lawyers to equity partners. There are really only two ways a firm can grow revenue: increase billing rates or increase the number of hours billed (i.e. hiring more associates). Some firms have business models predicated on high leverage (having a ton of expendable associates churning hours). While most of the firms with the greatest leverage are not the firms with the highest PPP, there are some exceptions (Paul, Weiss and Kirkland).
PPP is a decent metric of a firm's financial health, but people are starting to focus more on revenue per lawyer (RPL).
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Anonymous User
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Re: Profits Per Partner Explanation
Awesome, thank you!crouton62 wrote:In simple terms, PPP=Net operating income (revenue less expenses) divided by the number of equity partners. As for the factors you identified, decreasing margins/overhead obviously increases the profit pool for the partners. You're seeing that now with firms decreasing the amount of office space they're renting and not having as many secretaries per lawyer as they did back in the day.
Profitability itself isn't really a factor of PPP, other than the more profitable the firm, the higher its PPP will be.
Leverage is the ratio of non-equity partner lawyers to equity partners. There are really only two ways a firm can grow revenue: increase billing rates or increase the number of hours billed (i.e. hiring more associates). Some firms have business models predicated on high leverage (having a ton of expendable associates churning hours). While most of the firms with the greatest leverage are not the firms with the highest PPP, there are some exceptions (Paul, Weiss and Kirkland).
PPP is a decent metric of a firm's financial health, but people are starting to focus more on revenue per lawyer (RPL).
