LegalFirmTools

Rate Target Calculator

Work backwards from a firm revenue target to the average rate it requires once realization and collection are applied.

Last reviewed

·

Free · No sign-up · Runs in your browser

Rates usually get set by looking sideways at what comparable firms charge. A more defensible starting point is arithmetic: given a revenue target and the hours the firm can realistically bill, what average rate does that require?

The calculation has two answers - one assuming nothing is lost, and one reflecting actual realization and collection. The difference is what leakage costs, expressed as an amount added to every hour the firm bills.

Your numbers

Results update as you type. Nothing is sent anywhere.

Result

Required average rate

$337.72

Added by leakage

$52.01

Rate if nothing were lost
$285.71
Overall yield
84.6%
Hours assumed
11,200
Monthly revenue target
$266,667
Monthly hours needed
933.3

This tool performs arithmetic on the values you enter. It does not provide legal advice and does not create an attorney-client relationship.

The leakage premium is what write-downs and unpaid invoices add to the rate you must charge. Fixing collection lowers the rate you need.

Rate changes need client agreement and, for existing matters, usually written notice under the engagement terms.

How to use the rate target calculator

  1. Enter the firm revenue target for the year.
  2. Enter the billable hours realistically available across all fee earners.
  3. Enter your actual realization and collection rates.
  4. Compare the required rate against the rate at full realization.

What people use this for

  • Setting a rate card from a revenue target rather than from the market.
  • Quantifying what poor collection costs in rate terms.
  • Testing whether a target is achievable at rates clients will accept.
  • Making the case for billing discipline instead of a rate increase.

Worked examples

Every figure below is produced by running this calculator against the example inputs, so the numbers always match the tool.

A $3.2 million target

$3,200,000 on 11,200 billable hours at 90% realization and 94% collection.

Required average rate
$337.72
Added by leakage
$52.01
Rate if nothing were lost
$285.71

The same target with tighter billing

Realization at 96% and collection at 98%.

Required average rate
$303.69
Added by leakage
$17.98
Overall yield
94.1%

The leakage premium is the argument

On a $3.2 million target across 11,200 hours, perfect realization and collection would need an average rate of about $286. At 90% and 94% it needs about $338 - fifty dollars an hour added to every bill purely to cover what is being lost.

Presented that way the choice is clear. You can ask every client to pay fifty dollars an hour more, or you can stop losing it. The second option requires nobody’s agreement.

Rate rises have costs beyond the rate

Raising rates requires client agreement, usually written notice on existing matters, and it puts relationships into play at a moment nobody chose. Some clients treat a rate letter as a prompt to review the whole relationship.

Improving realization and collection is internal, compounds every year afterwards, and gives no client a reason to reconsider. For most firms it is both the cheaper and the safer lever.

Methodology and assumptions

What this calculator does, and what it deliberately does not do.

  • The yield factor is realization × collection. The required rate is the target ÷ (hours × yield factor).
  • The rate at full realization divides the target by hours alone; the leakage premium is the difference.
  • This is pricing arithmetic and says nothing about what any market will accept.
  • The tool performs arithmetic or date counting on the values you enter. It does not interpret a rule, a statute or a contract.
  • Nothing you type is transmitted or stored - the calculation runs entirely inside your browser.

This website provides general informational and productivity tools and does not provide legal advice or create an attorney-client relationship.

The date and deadline tools count days exactly as you instruct them. They do not interpret court rules, statutes of limitation, filing requirements or any other legal authority, and they do not know the rules of your jurisdiction.

Always verify any date, fee, or calculation against the governing rule, the court calendar and your own professional judgement. If you need legal advice, consult a lawyer licensed in your jurisdiction.

Frequently asked questions

Is this the rate we should charge?

It is the rate the target requires on your assumptions. Whether clients will pay it is a market question no calculator can answer.

What if the required rate is unrealistic?

One input has to change: a lower target, more billable hours, or better realization and collection. The last is usually the most achievable.

Revenue or profit as the target?

Revenue. Profit depends on the cost side, which this does not model. Use the firm profit calculator for that.

How does this handle fixed-fee work?

Convert the fixed fees to an implied hourly figure across the hours they consume, then include those hours and that value in the totals.

Related calculators

More firm economics tools on LegalFirmTools.

Browse all 4 tools →