While it doesnt drive revenue, accounting efficiency can have a dramatic impact on it, notably:

Are the proper billing rates being used?

Has all time and expense incurred during a particular billing period been accurately captured?

Was the project profitable (billed versus incurred)? If not, it is crucial to identify why and how the project could have been approached differently.

Is the client paying its bills? If not, do we continue working on the account?

There are two methods to develop bill rates. Most firms develop billing rates by professional staff level (e.g., consultant, associate). In the first method, they start with the levels average direct labor cost (average salary); burden this cost with taxes, benefits, and overhead (i.e., occupancy, general administrative, technology); and add on a target profit margin. The billing rate for a particular professional staff is generally fully loaded with certain costs and a built-in profit margin.

The second method used by firms with better brand recognition or proprietary services (e.g., bankruptcy processing services) may set billing rates based on a tradition pricing curve or supply/demand approach-basically setting the bill rate as high as the market will bear. Law firms and financial consulting firms operate in a competitive marketplace with little regulation and thus may set bill rates at the level their clients will pay. However, in some professional service areas, rates may be regulated, such as the health care industry or services for the government, which dictates acceptable rates and guidelines for billing structures.

We next examine several recent studies on bill rates.

Standard Hourly Billing Rates by Staff Level. Standard hourly billing rates vary among different staff levels at law firms. As a general rule, equity partners/shareholders and of-counsel attorneys typically bill at the highest rates. The biggest jump in billing rates occurs between the associate and partner levels, as shown in Exhibit 2.4.12

Median Hourly Billing Rates by Firm Size. As the size of a law firm grows, the median hourly billing rates increase at all staff levels. However, as Exhibit 2.5 demonstrates, equity partners rates increase at a greater rate than associates rates as the firm size increases.13

Quartile Analysis of Billing Rates by Position for Management Consulting Firms. As Exhibit 2.6 illustrates, billing rates vary significantly: up to 25

Exhibit 2.4 Standard Hourly Billing Rates and Billable Hours

Exhibit 2.5 Median Hourly Billing Rates by Firm Size

percent between the 50th and 75th percentiles and up to 44 percent between the 50th and 25th percentiles. The distribution of rates around the median is fairly tight for partner and project manager positions, although consultant and associate rates fall across a wider range.14

controllable costs* While labor consumes 50 percent to 70 percent of the firms costs, managing other costs in SG&A can still provide dramatic improvements in profits. There are specific criteria and guidelines that will assist a prudent businessperson in keeping down costs, which have

Exhibit 2.6 Analysis of Billing Rates by Position