There are approximately 1.3 million lawyers in the US. The law firm market is worth $403.9 billion, with growth in the sector at 0.7% between 2018 and 2023. Not surprisingly, it’s a profitable market, especially in personal injury claims, a sector that was valued at $103 billion in 2022. So, how do law firms make a profit?
Lawyers make their profits in the legal system by taking on cases and getting successful outcomes for their clients. There are several ways attorneys can earn income and significant fees through winning cases. The business model of law firms and compensation for legal services hinge on favorably resolving cases.
Hourly Fees
The most common way lawyers make money is by charging hourly fees for their time working on a case. Lawyers set an hourly rate, usually between $200 and $500+ per hour depending on experience and specialty. They bill the client for each hour spent researching, preparing documents, attending meetings/hearings, talking on the phone, and any other time used to work on the case.
Even if the lawyer loses the case, they still will have earned an hourly wage for their time. However, lawyers only earn significant profits if they win cases, through contingency fees and statutory fee awards.
Contingency Fees
Many personal injury lawyers, only get paid if they win the case. The lawyer and client agree to a percentage of the settlement or judgment, usually 33-40%, that the lawyer will receive as their fee if successful.
For example, in a car accident lawsuit with a $100,000 settlement, the lawyer may get $33,000 (33%) as their fee. The upside for lawyers is that huge verdicts or settlements can bring massive contingency payouts. However, the risk is also substantial as the lawyer may work hundreds of hours yet earn nothing if the case is lost.
Contingency fees provide access to legal services for clients who cannot afford hourly fees upfront. They also incentivize lawyers to work hard and win cases to earn their full profit.
Statutory Fees
Some laws like civil rights statutes, allow for the winning party to recover their legal fees and costs from the losing party. Jamie S. Cogburn, an experienced personal injury attorney in Las Vegas, NV, explains that “if an injury lawyer takes a case under a fee-shifting statute and wins, the defendant will have to pay the plaintiff’s reasonable attorney fees on top of any judgment or settlement. So, not only does the lawyer earn their hourly wage or contingency fee, but they also receive payment from the opponent covering their fees.”
This extra payment incentivizes lawyers to take cases protecting important rights. It also serves as punishment to defendants for violating the law and provides additional compensation to successful plaintiffs. Statutory fee awards can result in lawyers earning very lucrative profits from winning cases involving civil rights, employment discrimination, environmental law, and consumer protection.
Reputation and Future Business
While contingency fees, statutory fee awards, and hourly rates account for the direct profits lawyers make from winning cases, there are also indirect financial benefits. A track record of winning lucrative verdicts and settlements helps build a lawyer’s reputation. This reputation can attract more high-paying clients and cases in the future. Winning complex or high-profile cases also generates free publicity and media exposure for lawyers, further expanding their client base.
Ultimately, lawyers who consistently win cases for their clients end up earning the most.
