How Much Do Solos Really Make?

scrooge-mcduck

Around this time last year, we got a pretty depressing look at solo income. In sum, it looked like solo income was dropping overall, dropping relative to the rest of the economy, and barely rising relative to law firm partners.

Those charts were based on IRS data and research by University of Tennessee law professor Benjamin Barton. His research shows that solos’ average take-home (after-tax) earnings are about $49,000.

That seems low.

I realize the legal market has changed and continues to change, but it shouldn’t be too hard to beat that average if you put your head down and work as hard as most solos do.

Over the last year two other law professors have criticized Barton’s use of IRS data and proposed using other numbers to get a clearer picture. Seton Hall University law professor Michael Simkovic thinks Barton’s mistake was using Schedule C numbers, since he thinks many solos are probably earning money on the side. Based on census data, he thinks the average solo’s income should be closer to $100,000—or as high as $165,000 if you exclude part-time workers. Taking non-law practice income into account seems off the point to me, but I do know a lot of solos who are serial entrepreneurs or supplementing their law practice income with contract work.

Santa Clara University law professor Stephen Diamond sums up Simkovic’s findings:

That means there is little basis to the case that some kind of tectonic shift in the lives of lawyers has taken place. It suggests that for lawyers, at least, the glass is more than half full. It also implies that whatever their ups and downs in the market place law schools are continuing to produce trained professionals who are in demand in the marketplace.

However, Barton responded to Diamonds blog post, and the conclusion that solos have lost ground over time does seem inescapable:

Regardless, we agree (I think) that the IRS has used the same process and the same data collection since 1967. I see that you do not like the year 1988 as the comparison point. That is fine. Chose [sic] the first year (1967), or really any of the years between 1967 and 1972, and you will see that filers in this category have lost significant ground over the last generation. Since the beginning of the data these folks have lost roughly a third of their real purchasing power. I do not think that loss of earnings comes solely from whatever amount of non-lawyers are in the sample.

So what to think about this? Are solos doing worse, but still pretty well, or has solo practice fallen hard since the late 60s?

Well, if you are considering starting your own firm—solo or not—I don’t think you should get hung up on either number. Small-firm practice has always been a hard way to earn a decent living, and it still is. But if you come at your practice like an entrepreneur, with hard work and a clear strategy, you’ve got a good shot at beating the average.

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  • Michael

    wildy off mark, i can only speak to central florida, which i can tell you is extremely competitive, and lawyers on every block…however as a solo and also having several solo friends i do not know one that makes less then $120k after taxes and expenses and thats with a few years (3-4 yrs) under there belt…these individuals including myself focus on 2-3 practice areas that are what i call “retail law” such as crim defense, family law etc…family law especially, where there is no court appointed counsel to help you for free. You would be surprised how much money indigent people can come up with when there kids are on the line. When another party is trying to take there kid away, they are very motivated to come up with money to fight in court. I would expect these numbers to increase since generally the economy is getting better no matter your political stripe, most agree the regular consumer has more money in there pocket, then in the past few years (recession years). i think the key for solos is to not leave money on the table. Most solos i know starting out want to compete by being a low cost provider. And thats fine, but that doesnt mean have cut rate prices because that person taking the case ultimately loses. They should be charging slightly under what the “big firms” charge. the biggest miscalculation in the professors stats is that most competent solos want to show a LOW income on there taxes so that they SAVE money on taxes..(and perhaps show sallie mae that they make a low income therefore there income driven repayment plan stays low!!)

    • theonlyone

      You are on point. Solo practice does work out. The problem is that many newbies charge way too low and then get burned out because they are handling tough cases where they likely have been paid less than $1,000.00 and they cannot get out of the case. The issue is that law schools are not teaching the students the reality of the business aspects of law. You really have to know what to charge and be firm about it. That is the real challenge.

      • Michael

        i agree with you 100%…that is the real challenge for sure and that was a challenge for me starting out…i simply didnt know what to charge and it took me a while to get the swing of pricing things correctly.

  • Rob L.

    I obviously need to move where Michael is practicing. I do not know many solos making $120,000.00, especially those doing domestic work. There are some but it’s certainly not the norm. Check out craigslist and you will see all the starving new solos willing to start a case for $500.00 because they have not yet learned that clients know a judge is not letting you off a case once you are substantially involved over money and they know they cannot or will not pay more than that.

    When I was actively handling domestic work (much more than I am now), most of the clients wanted to make a down payment of $500.00 with you accepting $250.00 per month on a $10,000 case with $800.00 in costs and expenses incurred up front and most of the time, if you did not, they found someone out there who would.

    The IRS knows the typical expenses incurred by a solo attorney so I am not buying that solos are getting away with defrauding the IRS. I am buying hiding income either. I think the economy is just that dim for most solo attorneys and this is just 2 law professors protecting that school’s future enrollment because the cat is out of the bag that most law school graduates will be solos.

    • Michael

      A client looking for an attorney on craigslist is NOT a client I want. “normal” clients with decent careers use search engines, avvo, referrals etc. the way I see it, when a client retains me we are now in a legal marriage and must trust each other and get along. If someone is using craigslist predominantly to find an attorney, that tells a lot about that potential client.

      No one said anything about “defrauding” the IRS. I remember a good article on this site that told solo’s to not skimp on a good accountant. And thats great advice and advice that I took when i started my solo practice about 3 yrs ago after gaining experience in biglaw for a few years. Every competent solo knows there are completely legal tax strategies that one can employ to decrease your taxable income. Every company legal industry or otherwise, has accountants who are paid to find every deduction and keep taxable income low. If you are looking to pay the IRS more then your fair share then I dont know what to say to that. more power to you i guess. I disagree that the IRS knows the typical expenses for a solo. Solos come in every shape and size…there are some solos believe it or not that gross 1 million per year, 400k per year, 30k per year, 250k per year, etc etc. And thats not even factoring in locality and practice areas, and the serious under funding of the IRS right now. Cant group solos all in one category. Some solos might invest there profits right back into there company in technology purchases or upgrading there existing technology. Guess what? thats 100 percent tax deductible… not “defrauding”

      Its outrageous that some atty would take $500 down on a 10k case…ridiculous even. If that is true, then I shed a tear for that attorney because he is going to be in a world of hurt. In my jurisdiction I can tell you no attorney, would do that deal. That would actually be a financial loss to them.

      • Rob L.

        I stopped doing a lot of the domestic work in my area because of the $399 “uncontested divorce” guys. It’s really not worth my time dealing with domestic clients who are just looking for the best deal on an attorney and my experience has been that is most of them.

        I did most of my domestic work on a fixed fee. It got me a lot of consultations because it was not the norm at the time. I could usually tell at the consultation that I would not be representing a client because the eyes would glaze over when I quoted a fee that was in excess of $5,000.00 (and that was a lower fee).

        I even tried taking paying in installments when they agreed to guarantee future payments with automatic debit. The client inevitably would cancel the recurring payments a few days before the initial hearing knowing you would have to do the work and be unable to withdraw.

        Domestic clients here are just a different animal than any other practice area. I know of attorneys who will do an entire domestic case from start to finish for $2,500.00, total. You just cannot compete with that when the vast majority of the cases will resolve at the hearing officer conference, that attorney will pretty much file everything for almost nothing down, and the client just does not value the services received.

        Last year I quoted a client a fee of $3,000.00 for a contempt and child support modification matter. He looked at me like I had seven heads and told me about my good friend who would do it for $750.00. I let that guy have that case.

        The only real luck I have ever had is with contested child custody cases or custody modification cases. It’s rare but the right client will go to a finance company and borrow the money.

        The problem with the craigslist advertisements is that they show up pretty high in google searches, at least here they do, so clients already have an unrealistic expectation of the fixed fee I am about to quote from the start.

        I will still do some domestic work but I do not accept installments anymore, you have the money or can get it or you do not. I had clients log in on the eve of the court appearance to cancel recurring debit plans a few too many times. The client knows most judges will not let you out of the case. Due to the sheer number of starving attorneys willing to do an entire domestic case for peanuts,I came to the conclusion I would tell them my fees start at $x and most of the time they either hang up or I hear an audible gasp.

        “Defrauding” was a strong word and I should not have used it. I do not know very many 6 digit solos here. I would bet most make around what the IRS reports.

        • Michael

          I admit my jurisdiction is a lot more liberal then some. If you go to short matter hearings before family law judges here, there is a line of attorneys who easily get out of cases for “irreconcilable differences” and in 5 secs flat the judge signs there order for withdrawal. unless trial is set then thats a different story.

          What general location do you practice in? im curious…i have seen wide ranges for what people make depending on location…i did a joint case with a lawyer in a SMALL county in tennessee that many people didnt know existed. i had to rep the client for his issues in florida and the tennessee attorney had to defend the former wife’s attempts to bring the case in that county in tennesee because she was politically connected there. That attorney in tennesee was doing really really well, because in that county of about 75k peolple there were literally about 10 attorneys there.

          I agree with you, i dislike doing family law…its so emotionally charged and many clients expectations are unreasonable.

          • Rob L.

            I am in Louisiana. Things tend to move rapidly here. Everything is inconsistent as well as some parishes have a hearing officer while others do not. At times there will be 20 things on the docket call but since most of those are going to resolve so chances are, if you have a contested matter, it’s going to trial on the first date set absent some extreme circumstance or all parties agreeing. I never asked to withdraw on a trial date, even a first setting, for non-payment but I have seen many attorneys get shot down. If you get lucky and do not have a hearing you may be allowed to withdraw if you act extremely quickly.

  • Bryan Scheiderer

    Perhaps the law professors could take a sabbatical for a year or two, move to a rural or economically depressed area of the country and start a solo practice….then report back with their earnings.