What’s Your Firm Really Worth? A COO’s Guide to Law-Firm Valuation (Beyond Revenue)
The Problem With “Revenue × 2” Thinking
Ask ten lawyers what their firm is worth and you’ll probably get a confident answer followed by a wildly arbitrary number.
Most will quote a “rule of thumb” — maybe 1× or 2× annual revenue.
But that shortcut ignores what actually drives value: systems, sustainability, and scalability.
A million-dollar practice that depends on one rainmaker is worth far less than a million-dollar business that runs on process and data.
Listener Question (from Reddit r/LawFirm):
“How do you even value a small practice if the founder wants to retire? Everything’s basically in their head.”
That’s the right question — and the one most firm owners avoid.
Valuation starts with separating the owner from the enterprise.
EBITDA Multiple Method — The Most Common Starting Point
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.
In plain English: your true operating profit.
For small and mid-sized law firms, typical multiples are:
Firm ProfileTypical EBITDA MultipleWhy It MattersSolo / Owner-Dependent1.0–1.5× EBITDAValue vanishes if the owner leaves.Process-Driven Boutique2–3× EBITDASystems + client depth = transferable value.Institutional Firm with Leadership Bench3–5× EBITDARevenue predictable, risk diversified.
Example:
Two Dallas boutiques each net $500 K.
Firm A: Founder handles intake, billing, and strategy → 1.25× = $625 K valuation.
Firm B: Has COO, CRM tracking, delegated billing → 3× = $1.5 M valuation.
Same profit. Different systems. Double the value.
Discounted Cash-Flow (DCF) Method — The Forward-Looking View
DCF projects future cash flow and discounts it to present value.
Formula (simplified):
FirmValue = ExpectedAnnualCashFlow/(1+DiscountRate)*Years
If your firm expects $600 K net profit for 5 years, with 10 % risk discount:
Value ≈ $600 K × (3.79) = $2.27 M.
But that assumes those profits are repeatable.
Without documented client pipelines or retention metrics, your “discount rate” jumps — and value plunges.
Gross Revenue Multiple — Useful Benchmark, Flawed Reality
Some brokers quote firms at 0.6–1.2× annual revenue.
But it only works if margins and client churn are stable.
A $5 M firm with 10 % profit (=$500 K) is not worth the same as a $5 M firm with 30 % profit (=$1.5 M).
Revenue tells you what happened; profitability tells you if it’s sustainable.
Asset + Goodwill Method — The Boutique Reality
Many smaller firms rely on this hybrid:
Tangible assets = cash, receivables, furniture, equipment.
Intangible goodwill = brand equity, recurring clients, team stability, documented know-how.
Goodwill can be 30–70 % of total value if the firm’s reputation and relationships are transferable.
If everything depends on one partner’s personal brand, goodwill = zero.
Operational Drivers That Move Your Multiple
Valuation isn’t just math — it’s operational credibility.
These five factors move the needle fastest:
Collections Velocity – how fast you turn billable hours into cash.
Client Concentration – % of revenue from top 3 clients. Lower is safer.
Leadership Depth – can the firm operate for 60 days without its founder?
Recurring Workflows – subscription plans, retainers, annual estate updates.
Data Visibility – reporting that shows health in real time.
Each adds credibility to future earnings and reduces buyer risk.
Dallas Firms: Why Local Valuations Look Different
In 2025, Dallas remains a hot legal market — but multiples are tightening. According to Law360 Pulse, boutiques here are trading at 1.5–3× EBITDA, down slightly from 2022’s peak.
Why? Buyers are more skeptical of founder-dependent practices after a string of acquisitions went sideways when key rainmakers left.
Firms with clear systems, cross-trained teams, and documented pipelines are fetching premium multiples — even in a cooler market.
How a Fractional COO Adds Valuation Equity
A COO doesn’t just make things run better — they make them worth more.
They:
Build visibility dashboards so buyers can see profit predictability.
Document processes to transfer institutional knowledge.
Reduce owner dependency by creating accountability layers.
Clarify KPIs so leadership can steer proactively.
In valuation terms, they don’t just add efficiency; they reduce risk — and risk drives the discount rate.
The Bottom Line
Revenue is a snapshot. Value is a story.
If your firm can run without you, scale predictably, and show profitability with data, you own an asset.
If not, you own a practice.
Start tracking your real value today — and you’ll be ready for whatever’s next, whether that’s succession, sale, or steady growth.
At ING Collaborations, I help law firm founders turn their business into an asset that can be valued, transferred, or sold — not just operated. Let’s quantify your firm’s real worth and build the infrastructure that protects it.