The 4-Hour Per Day Rule
How to Calculate Your Effective Hourly Rate
Stepping into the world of practicing law for the first time comes with its fair share of stressors and unknowns. One of the first things you’ll need to determine is how much you can expect to charge for your services. Will you be able to set an hourly rate that’s reasonable for an attorney in your area, and provides enough income to meet your needs?
Determining this doesn’t have to be stressful, though, thanks to a budgeting strategy we call “The 4-Hour Per Day Rule.” The central idea is this: an attorney should be able to get by from billing and collecting four hours per day, five days per week, twenty days per month.
We’ll walk through all the steps of this strategy to help you determine if your office can survive and thrive under this rule.
Step #1—Determine your expenses
If you haven’t already, take time to calculate a monthly personal budget. How much do you need per month to pay your share of rent or a mortgage? What are the average costs of your monthly bills? How about groceries and other expenses? Do you have a spouse or roommate who shares the expenses?
With all these things in mind, you should be able to come up with a dollar amount that represents how much you need for your share of your household’s bills. Make sure your expected taxes are calculated into this amount as well.
On top of that, factor in your share of the costs of running your office. How much do you need to pay for your office space? What about marketing materials? How often will you need office supplies? Take inventory of how much your practice costs on a monthly basis and produce an estimated dollar amount.
Step #2—Calculate your rate
With the total of your average monthly personal and business expenses in hand, it’s time to apply The 4-Hour Per Day formula.
Your goal is to divide your total monthly expenses by the number of billable hours you expect to work each month. We already know we want to aim for four billable hours a day. If we assume you’re working for five days a week, this totals to 20 days a month. Thus, 20 x 4 = 80 billable hours per month.
For the sake of example, let’s say your personal expenses equal $8,500 per month, and your office expenses equal $4,000 per month. Adding these up, we end up with $12,500.
So, if we take your total amount of expenses ($12,500) and divide it by the average billable hours you’ll work each month (80), your hourly rate comes out to $156.
Step #3—Ensure your effective rate is fair
Once you have that effective rate calculated, it’s a good idea to compare it against the rates of similar attorneys in your area to make sure you aren’t overcharging.
Two ways of determining this are by talking to attorneys in your community and by asking judges at your local courthouse. Judges award attorney fees every day, and will generally be a great source of insight. Plus, if the local rate is higher than your needs, you may choose to charge less, knowing that you need a bit less to make your monthly budget.
Your main goal in this step is to see if your rate (in our example, $156) is at or lower than the expected hourly fees an attorney of your experience can charge. If it is, your practice has a greater statistical chance of success and provides you a daily idea of this chance based on your work output.
If, however, the hourly rate is woefully inadequate to support your needs, take a hard look at your costs and overhead to manage them more efficiently and realistically.
To learn more about the 4-Hour Per Day Rule, you can watch Claude Ducloux, experienced attorney and LawPay’s Director of Education, discuss the topic in our video below: