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“One of the big problems that we see in your profit and loss statement is when your business is not paying you an appropriate normalized salary.” – RJon Robins, author of Profit First for Lawyers
Many law firm owners know what they pay themselves, but few have stopped to ask an important question:
What should the business be paying them?
In part four of our seven-part financial literacy series, RJon takes a deeper look at normalized salary. This is one of the key components of Total Owner Benefit discussed in the previous episode, Calculating Your Total Owner Benefits. Drawing from a 2019 Profit First for Lawyers workshop, he challenges a common assumption about an owner’s compensation:
A law firm owner’s salary should be based on the work they actually perform inside the business, not their title, credentials, or ownership stake.
What Is a Normalized Salary?
A normalized salary is the amount a law firm would reasonably pay someone else to perform the same work you currently do inside the business.
Whether you are acting as a senior associate, marketer, salesperson, tech support, or even the occasional janitor, each role has a market value. Understanding how much time you spend performing each role helps create a more accurate picture of what your labor is worth to the firm.
Why It Matters
Many law firm owners unintentionally blur the line between compensation for labor and compensation for ownership. When that happens, financial reports become harder to interpret and profitability becomes more difficult to measure accurately. But calculating a normalized salary creates greater clarity around both.
Key Takeaways
- Normalized salary is based on the work you perform, not your title
- Every role inside your firm has a market value
- Understanding how you spend your time creates greater financial clarity
- Compensation for labor and compensation for ownership are not the same thing
- Financial literacy requires objective thinking, not emotional thinking
Normalized salary is not about assigning a value to yourself as a person. It is about creating a more objective understanding of the work you perform inside your business.
Action Steps
- Make a list of every role you currently perform inside your firm.
- Estimate what it would cost to hire someone competent to perform each role.
- Determine the approximate percentage of time you spend in each role.
- Calculate a rough normalized salary based on those percentages.
- Compare your current compensation to the value of the work you are actually performing.
While this exercise may feel uncomfortable at first, it can provide valuable insight into how your time is being spent and whether your firm’s resources are aligned with its highest priorities. The clearer you become about how your time is spent and what that work is worth in the marketplace, the easier it becomes to make informed decisions about compensation, profitability, and growth.
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