The hidden costs of law firms

By Mgr. Olga Vavrova, Senior Attorney, SAMAK Legal, s.r.o.

Rent, salaries and insurance premiums are easy to identify and are common costs for law firms around the world.

However, some of the costs that really erode profitability tend to sit in places most partners never think to look.

Ask any managing partner what it costs to run their firm and you will most likely get a confident answer:

“Wages, premises, professional indemnity cover, software licences and regulator’s fees all sit neatly in the management accounts.”

What you will rarely find is a line for the associate who resigned in the spring, or for the client who drifted away while a replacement was found.

Nor will there be an entry for the hours lost each week to clunky systems or for the invoices trimmed and tweaked before they ever left the building.

Having spoken with many other Lexlink members, these are the hidden costs of running a law firm. They are harder to measure than rent or pay packets, which is exactly why they are so easy to ignore.

Yet evidence from around the world suggests these costs are increasing and, for many firms, now pose a challenge to growth.

The revenue that never reaches an invoice

Law is still largely sold by the hour, so every unrecorded hour is a direct loss. The trouble is that many firms have little idea how many hours are slipping through.

Research carried out by Censuswide for Access Legal in April 2026 estimated that the average law firm in England and Wales is losing close to £2 million a year in unbilled time because of technology that fee earners regard as unfit for purpose.

Time recording and billing, switching between disconnected applications, document drafting and client onboarding were the main culprits that the study recognised.

More than seven in ten fee earners said the admin burden of their firm’s main software made it harder to capture the time they had actually worked.

The UK Law Society’s Financial Benchmarking Survey 2026 puts this into context. The median fee earner in the firms surveyed recorded 807 chargeable hours over the year, which is up from 756 the year before, but it still means a large part of every working week goes on activity no client will ever pay for.

The UK is just an example of a global issue with practices, which is that supervision, administration and business development matter.

However, a meaningful share of this work creates friction, including:

• Re-keying data
• Chasing documents
• Hunting for the latest version of a file
• Waiting for systems to catch up

Every minute wasted has a price and the firm pays it in full, without it being properly recognised in their accounts.

Write-offs and the slow leak of value

Recorded time is not guaranteed to turn into income either. BigHand’s 2026 Law Firm Finance Report, based on responses from more than 800 senior legal finance professionals in the UK, Ireland, the US and Canada, found that nearly 90 per cent of firms had seen write-offs increase, with most expecting the trend to continue.

In fact, half now say aged work in progress is the main source of pressure on cash flow, up from roughly a third a year earlier.

Write-downs often happen quietly, where a partner trims a bill because they suspect the client will baulk at the research time or a matter overruns its estimate and the excess is absorbed rather than discussed.

Individually these decisions look like good client care and an investment in future referrals to the firm, but collectively, over time, they can wipe out a significant slice of a firm’s margin.

Someone has to fund that gap, usually the bank or the partners themselves, and, in effect, the firm is lending money to its clients interest-free.

The true price of a resignation

If unbilled time is the most underestimated financial cost, staff turnover is the most underestimated human one, which is often more expensive than many leaders realise.

BigHand’s Legal Talent and Resourcing Report 2025 found that overall lawyer attrition had climbed to an average of 27 per cent.

The proportion of associates leaving private practice altogether almost doubled in a year, reaching 16 per cent of junior associates and 17 per cent of senior associates.

Going by the report’s estimates, each departure can cost a firm up to US$1 million once lost revenue and the costs of recruitment and training are taken into account.

The recruiter’s fee is only the visible part, but beneath this sit the months of reduced billing while a seat is empty, the hours partners spend interviewing instead of advising clients, the cost of bringing a new hire up to speed on firm systems and the long run-up before they reach full productivity.

We all know that the loss of an employee is also the loss of knowledge, sometimes so specialised that it reduces a practice’s service offering entirely.

Even where a person’s expertise isn’t niche, an experienced associate understands the client’s history and the quirks of a long-running matter and very little of that is ever written down.

This doesn’t even consider the additional workload that other staff have to take on, which can, in itself, lead to more churn within a firm.

Mid-sized firms tend to feel it most, because smaller teams have less capacity to absorb a departure.

Burnout is a business risk

Working as a solicitor can bring a higher degree of stress than many other professions. High expectations, strict professional standards and long working hours all add to the risk of burnout.

LawCare’s Life in the Law 2025 report, based on responses from more than 1,500 people working in the legal sector, found that nearly 60 per cent had poor mental wellbeing and half had experienced anxiety often or more frequently over the previous year.

Almost eight in ten said they regularly worked beyond their contracted hours, and close to one in ten were putting in more than 21 extra hours a week.

Worryingly, those aged 26 to 35 scored highest for burnout and lowest for wellbeing, which is precisely the group firms rely on to deliver the bulk of their chargeable work and to become the next generation of partners.

When they burn out, they leave, their caseload lands on colleagues who are already stretched and the cycle starts again.

There are subtler costs as well. Tired people make more mistakes, and in legal practice a mistake can carry consequences far beyond a missed deadline.

An exhausted fee earner is more likely to overlook a limitation date or click on a convincing phishing email.

These problems can be rectified, but not without real effort and thought. A firm that treats long hours as a badge of honour, or that only ever contacts staff to chase missing timesheets, should not be surprised when talented people decide the trade-off is not worth it.

Cyber risk and the insurance gap

Law firms hold exactly what criminals want – confidential information and client money.

The direct cost of a successful attack can be severe, but the hidden cost often lies in what a firm assumed it was covered for.

Many partners believe their professional indemnity insurance will respond to a cyber incident only to find out – too late – that it doesn’t.

In general, it will protect clients against third-party losses, but it will not cover losses that fall only on the firm.

Forensic IT investigation, business interruption, data recovery and the billable hours lost while systems are down can all land on the firm unless it holds separate cyber cover.

Even where it does, conditions around patching and encryption can leave gaps that only become apparent once a claim is made.

Then there is the damage to reputation. A firm that has to tell clients their data may have been compromised faces a long road to rebuilding trust, and some clients will not wait around while it does.

Bringing the hidden costs into view

None of these costs is inevitable and the law firms managing them best tend to share a willingness to measure what others prefer to ignore.

The visible costs of running a law firm will always command attention, because they arrive as invoices.

The hidden ones arrive more quietly, but over time they can do far more damage.

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