What does a law firm revenue target look like in practice?
A law firm revenue target is the total revenue your firm needs to collect to cover owner compensation, operating costs, and reserves. Most owners build it backward — starting from what they want to take home and stopping there. The number is almost always bigger than that.
Let's walk the numbers above through a real firm. Say you own a small practice with three lawyers, including you.
Step 1 — Add up what the firm has to cover
You want the firm to provide $250,000 in total owner compensation — all the salary and profit distributions paid to you as the owner. Treat that as a fixed cost of running the business, not whatever happens to be left at the end of the year. On top of that sit $500,000 in annual operating costs: employee compensation, employer payroll taxes, rent, software, insurance, marketing, and everything else required to keep the doors open.
One note before you plug in your own figure: the $250,000 is pre-tax. It's what the firm pays you, not what lands in your personal account after you've paid your own income taxes.
Step 2 — Add reserves
Stopping at $750,000 leaves nothing to build the firm's reserves. Reserves are your firm's rainy-day fund — cash to handle a slow month, an unexpected expense, or an investment you want to make without taking on debt or cutting your own pay.
If your goal is to contribute 10% of revenue to reserves, your annual revenue target is approximately $833,333. Here's the part that trips people up: this isn't $750,000 plus 10%. The reserve contribution comes out of revenue, so you divide rather than add.
Adding 10% would give you $825,000 — and leave you $8,333 short every year.
| Annual | Monthly | |
|---|---|---|
| Owner compensation | $250,000 | $20,833 |
| Operating costs | $500,000 | $41,667 |
| Reserve contribution (10%) | $83,333 | $6,944 |
| Revenue target | $833,333 | $69,444 |
Across three lawyers, that's roughly $278,000 in revenue per lawyer — a useful sanity check against what's normal in your practice area and market.
Step 3 — Work backward to the work
Once you know the target, you can work backward to how much business the firm actually needs.
If you bill flat fees: at an average collected fee of $5,000 per matter, the firm needs about 167 fully paid matters a year — roughly 14 a month.
If you bill hourly: at a $350 effective rate, the firm needs about 2,380 collected hours a year — roughly 795 per lawyer. Note that's collected, not billed or worked. If you're writing down 15% of your time, you need to work closer to 935 hours per lawyer to collect 795.
Why the number is higher than you expect
It's easy to start with what you want to take home and underestimate what the business must generate to support it. A few things usually explain the gap:
- You left reserves out of the equation entirely.
- You treated your own compensation as leftovers rather than a fixed cost.
- You planned around fees billed rather than money actually collected.
If you want to go deeper on the numbers behind this, start with The 5 Financial KPIs Every Law Firm Owner Should Track.
How much should a law firm keep in reserves?
A common target is three to six months of operating expenses. For a firm with $500,000 in annual operating costs, three months is $125,000. Contributing 10% of revenue gets you there in about a year and a half — which is why the contribution rate matters more than the target when you're starting from zero.
What if my revenue target looks impossible?
Then it's telling you something useful. Either the fee structure is wrong, the cost base is too heavy for the firm's size, or the compensation goal needs to be staged over two or three years instead of one. A target you can't hit isn't a failure of the math — it's the first honest look at what the current model can and can't produce.
A useful law firm revenue target starts with the life and compensation you want — then works backward through the real economics of the firm.
