Realization. Utilization. Leverage. Alternative and contingency fee arrangements. For young lawyers, focusing on these bean-counting concepts can seem like a mundane chore. They may feel that these issues are the responsibility of senior partners and firm management. But this line of thinking would be a mistake. The days of large, round numbers on a client's bill for "services rendered" are long gone. Law firm economics matter for lawyers at every level.

Young lawyers—junior associates, experienced associates, new partners and in-house attorneys alike—should seek to understand how law firm economics impact their careers. And it is never too early to start.

Junior Associates

Junior associates at law firms might wonder how law firm economics are relevant to their day-to-day working life. Do good work, put in a lot of hours, and always be available, right? While it is true that this group has the least amount of control over law firm economics, as more law firms use realization and utilization rates in deciding on partner compensation, junior associates would be wise to get up to speed on the basics and align their work with partners' expectations.

First, junior associates should consider initiating a dialogue about billing rates. Many junior associates have no idea what their billing rate is for a particular case or deal. It is important to understand—even as a very junior lawyer—how much clients are being billed for an hour of your time. Discussing billing rates will help introduce junior associates to the concept of realization—that is, the proportion of recorded billable time that clients are actually billed. This is typically expressed as a percentage. Understanding realization early on can help junior associates appreciate the importance of being efficient and how their time is valued by clients and the firm.

While junior associates may have little control over write-downs to their time on the final bill, they can take steps to minimize them by aligning expectations. Ask the assigning partner or senior associate how much time they think a particular assignment should take or what the overall time commitment to a matter will be. Form a general agreement on anticipated time and, if circumstances change, revisit the conversation so there are no surprises when the bill shows up on the partner's desk.

Second, it is easy to focus on the prime directive of law firm life: work a lot of hours. But many junior associates may be unfamiliar with the term utilization, which is how firms keep track of lawyer workload. There are different metrics for tracking utilization—for instance, if an attorney is expected to bill 2,000 hours per year, utilization would reflect the attorney's progress toward that goal on an annualized basis. Regardless of the exact metric, junior associates should not be afraid to ask what is expected in terms of hours worked and how this is reflected in their firm's utilization calculations. They should inquire about billable and nonbillable expectations and how these numbers might impact their compensation.

Third, junior associates must take the initiative with respect to their own professional development. Tracking realization and utilization means there is less financial incentive for partners to allow junior associates to attend hearings or depositions if such work would be classified as unbillable. Junior associates should learn to assert themselves, ask to participate in these important training opportunities and be willing to make a case for themselves.

Experienced Associates

Associates with several years of experience are expected to have a more nuanced understanding of realization and utilization. At that level, associates have a more direct impact on those metrics for the firm. Partners expect senior associates to manage junior associates' time in an efficient manner. Many junior associates work on several matters at once, and understanding these commitments is a core skill for experienced associates. Inefficient management by senior associates can create utilization and realization problems at the junior levels. To avoid this, experienced associates must communicate both up and down the chain: first, with partners about staffing expectations for client projects, and second, with junior associates regarding expectations of time.

Experienced associates also often deal with clients directly about fees and costs. If a budget or fixed-fee arrangement is in place, clients will expect that the attorneys they are working with understand those parameters and stay within them. Experienced associates should therefore discuss billing arrangements or guidelines with partners in advance and work out a detailed plan for staying on budget. This dialogue should be constant throughout a matter so that if circumstances change, senior associates can work with partners to explain to clients how and why costs may increase. An open and frequent dialogue with partners on this issue will help align expectations for all, reduce stress for senior associates and minimize the risk of write-downs.

New Partners

New partners have achieved a tremendous accomplishment—and one that significantly increases the pressure felt on economic issues. Partners are expected to have mastered law firm economic concepts and be mindful of them when building and expanding their practices. Firms expect partners to keep track of associate utilization and realization and, if appropriate for that firm's structure and its clients, aim for well-leveraged matters. Leverage is typically expressed as a ratio, such as 3:1. Firms look to partners to knock all of these metrics out of the park to ensure the firm's profitability.

Partners also confront fee pressures from clients seeking to reduce legal spend. Clients request all manner of cost ­reductions—capped fees, reduced rates, overall discounts, expense limits and more. All of these requests impact a firm's bottom line. Clients also often have detailed policies on how external counsel spend is managed and what billing arrangements are permitted (or required). Clients further do not want to pay for training time for junior associates.

New partners must navigate these expectations from clients while also balancing their firms' internal economic expectations. It can be a very difficult push-and-pull. This places a great burden on young partners trying to develop and sustain a practice in a competitive market.

The key—just like for the junior associate—is an open dialogue. Partners should have detailed conversations with clients and potential clients about budgets, staffing and costs. Ideally, interests are aligned. Partners want to provide legal advice at a cost that will reflect well on their in-house contacts, who may need to justify their choice of counsel and legal spend to other internal stakeholders.

New partners should leave no stone unturned in these initial conversations and continue to have them frequently with clients as matters unfold. Expectations that are clearly set forth in advance on both sides will help avoid difficult conversations about costs at a later stage of the deal or case, as will constant updates about budgets and estimated fees. Just as a partner should not be surprised by the number of hours worked by a junior associate, a client should not be surprised by a bill they receive from a firm.

Nevertheless, as leaders in the firm, new partners should also take care to facilitate the retention of associates. While clients may not want to pay for training time or have unrealistic expectations of the amount of time associates should bill on a project, new partners nevertheless must mediate these concerns for the law firm to be a sustainable and rewarding place to work.

In-House Lawyers

Many in-house lawyers who have left law firms breathe a sigh of relief when they realize they do not need to enter time at the end of the day. However, leaving the billable hour behind does not mean that law firm economics are no longer relevant to young in-house lawyers.

First, in-house lawyers are clients and will be paying for a firm's services. In-house lawyers therefore must understand their organization's budgets for external counsel. No one wants to be responsible for a matter that vastly exceeds budget.

Next, young in-house lawyers must evaluate and compare different firms in terms of expertise, experience and, indeed, cost. Selecting a firm to use for a particular matter is a critical part of the job and whether it's fair or not, mistakes or cost overruns by a firm can be imputed to the in-house lawyer who selected them. Therefore, young lawyers at companies must carefully understand a firm's pricing model for their work and how the work will be executed.

Additionally, even in-house lawyers who may not yet be in the position of selecting firms likely will work with them. Young in-house lawyers—particularly those who have never worked at a law firm—need to understand a firm's billing rates and what it costs the company. Junior in-house lawyers should consult frequently with more senior colleagues about which projects external counsel are working on and any budgets that may be in place. This will help the in-house team work more efficiently in divvying up tasks between themselves and external counsel and keep everyone on budget.

Young lawyers should take the opportunity to discuss these issues with trusted mentors to gain a deeper understanding of the details and how these principles impact them. A more open, holistic conversation on these issues can help lawyers at every level limit the stress and pressures involved.

The views expressed here are personal to the authors and do not represent the opinions of their employers.

Board Members: Aaron Swerdlow, Alex Tarnow, Andrea Guzman, Andrew Warner, Aydin Bonabi, Bess Hinson, Blair Kaminsky, Brianna Howard, Brooke Anthony, Emily Stedman, Emma Walsh, Garrett Ordower, Geoffrey Young, Heather Souder Choi, Holly Dolejsi, Jennifer Yashar, Jessica Tuchinsky, Ji Hye You, Josh Sussberg, Kevin Morse, Kyle Sheahen, Lauren Doyle, Martina Tyreus Hufnal, Mauricio Espana, Nicole Gutierrez, Peter Buckley, Quynh Vu, Rakesh Kilaru, Reggie Schafer, Sakina Rasheed Foster, Sara Harris, Shishene Jing, Tamara Bruno, Tim Fitzmaurice, Timothy Perla, Todd Koretzky, Travis Lenkner, Trisha Rich and Wyley Proctor.