Whether you are a sole practitioner or you own a national law firm, successfully growing a Social Security Disability (SSD) practice is not an easy task. Many disability practices make the mistake of growing too fast and find themselves strapped for cash.
The first question to ask yourself when starting or growing your disability practice is how many cases do you currently have pending and how many cases would you like to have? It might be tempting to say I want as many cases as possible, but that is not feasible. In order to increase the capacity of cases that you can handle, you will likely have to hire attorneys, paralegals, intake staff, etc. and spend more money on advertising. This will require an upfront financial investment and given the fact that it can often take over a year before you get paid on a social security disability case, you are unlikely to see a return on that investment for quite some time. Not managing your expenses efficiently could lead to a cash flow problem and put the future of your law firm in jeopardy.
To demonstrate how you should view cash flow, let's look at a law firm who is just about to start taking on SSD cases.
Let’s say you would like to retain 20 new SSD cases per month. How many leads will you have to generate each month in order to get 20 new cases? If you convert 10% of the leads into signed cases, which is not unreasonable, then you will need to generate 200 leads per month. Assuming a $35 cost per lead, that will result in a marketing cost of $7,000 per month.
Now that we have taken care of the marketing cost, lets look at the cost of labor. First, you will have to hire an intake person. An intake person can typically resolve about 2.5 leads per hour. Thus, if you have to resolve 200 leads every month, then you will have to hire a person to work 80 hours/month. At a salary of $15 per hour, you will have to pay an intake person $1,600 per month.
Next, let's take a look at the cost of hiring a paralegal. On average a paralegal can handle a caseload of about 200 cases. Thus during the 11th month of handling SSD cases, you will have to hire a 2nd paralegal as your case load will have now increased to 220 cases. On average, it takes about 18 months for a Social Security Disability case to be resolved. Thus, starting in month 18 your caseload will no longer increase, as the rate at which you are getting cases will now match the rate at which you are resolving the cases. The average salary for a paralegal is about $40,000 per year. Thus, for the 1st 11 months your paralegal cost will be $3,333 (40,000/12) and for every month there onward it will be $6,667 per month since your will need 2 paralegals.
Next, you will need to hire an attorney or pay yourself if you are the one who will be handling the cases. The average disability attorney is going to make about $60,000 per year or $5,000 per month. We assume that a typical attorney will be able to handle about 25 hearings per month, thus if you decide to generate more than 25 new cases every month, you will likely need to hire a 2nd attorney.
Revenues and Profitability
These costs add up to $16,933 per month for the 1st 9 months and to $20,267 for every month thereafter (due to the cost of hiring a 2nd paralegal). Given the fact that it takes about 18 months to resolve an SSD case, you likely to see a return on your investment for those 18 months. This will mean an upfront investment of about $315,000 before generating any return.
Now, let’s look at the potential revenue you can generate each month starting in month 18. You will have 20 hearings every month. It is not unreasonable for you to win 75% of those hearings. The average SSD attorney fee is about $2,600. Given these facts, you should be able to generate about $39,000 per month in revenue (20 hearings * .75 * $2,600). Since your operating cost is $20,667, your profit each month, starting in month 18, should be approximately $20,000.
Generating a profit of $20,000 per month, you should be able to recoup your initial investment of $340,000 by month 34. In less than 3 years, not only can you recoup your initial investment, but also can start to generate an operating profit of $20,000 per month!
Managing the cash flow of any business, let alone a disability law firm is not an easy task. Many law firms make the pitfall of trying to grow too fast, not realizing how much of an upfront investment is needed when you try to start or expand your disability practice. At eGenerationMarketing, we have been helping disability law firms expand their practice for last 5 years.
To find out, how we can help you give us a call at 617.800.0089.