Using Your Photocopier as a Profit Center

We are continuing to talk about "tips" in the area of "billing" as you know. "Billing" is the fourth part of the five parts that make up every business in the world. The other four parts are: "Clients" or "customers"; "Administration"; "Getting the work done;" and "Collecting."

For the next series of articles in "billing" we are going to continue to talk about the "billing" of expenses as a way to hold down your hourly rate and pass on needed expenses to the client.

As we have already stated, this whole process of billing expenses begins with your engagement letter. The paragraph in our engagement letter regarding expenses is as follows: "It is our policy to utilize the personnel who can most efficiently handle the task to be accomplished. In addition to our hourly rate charges, which are billed in quarter (1/4) hour task increments, we will bill for all out-of-pocket expenses incurred on your behalf, including all charges for photocopying, long distance telephone calls, postage, word processing, telecopier, court filing fees, court reporter fees, mileage and travel costs, parking charges, file storage fees, office supply fees, consultation fees for outside professionals, exhibit and witness fees, delivery fees, service of process fees, subpoena fees, and all other necessary and incidental expenses incurred on your behalf."

Last week we talked about a charge for "word processing," this week we are going to talk about charging for "photocopies."

Believe it or not, our photocopy machine is one of the largest profit centers in our law firm. We charge twenty-five cents for every photocopy. This photocopy expense shows up in the case expense section of all our bills. In almost thirty-five years of practice, I have only had three clients ever question this charge. In those instances, it was easier to write the photocopying charge off than it was to argue with the client about the philosophy as to why we were billing them a photocopying charge, not to mention the fact that they had signed a contract saying they were going to pay it.

The philosophy behind billing twenty-five cents for copies is actually quite simple. As our firm has evolved over the years, it has always struck me that we seem to get bigger, faster, and fancier copiers. Additionally, people need to be trained and ultimately be proficient operators of the photocopy machine. Then of course, there is also paper, toner, and maintenance. When you take the cost of everything connected to your copier into account, from a "cost-accounting" point of view, you find out pretty quickly that your copier can be expensive. You probably did not buy your copier outright, you probably financed it, and so you are making monthly payments and on top of that, you are paying something per copy or at least something that would be per copy for overages per copy for copies over a set amount per month. All of this adds up way faster than you might ever think.

From a "cost-accounting" point of view, we have often determined that the actual outlay to make a copy in our office without factoring in any operator cost, is approximately ten cents a copy. If you do not pass this cost onto your clients, this becomes nothing but part of your "overhead," and pushes your "overhead" to a larger percentage than it should be.

On the other hand, if you charge the client for your copies, at a bare minimum, this should be a net zero sum on your "overhead" expense number. But why make this a zero net sum, when you can make it a profit center? By adding an additional amount to the actual cost of the copy, you build in not only the unseen cost of personnel, but also the overlooked cost of square footage rent, unusual maintenance, and absolutely certain obsolescence. Interestingly enough, we set twenty-five cents as a copy almost twenty years ago and have never raised the price. This phenomena is accounted for because copiers have become more efficient over the years and it appears as though the actual cost of making the copy has remained relatively stable.

I remember one time approximately fifteen years ago when I had our office manager look at an actual "cost-accounting" regarding our copy machine and had pleasantly confirmed that the copy machine had made us $45,000.00 in a given year over the actual cost that we had incurred. When I factored in rent, non-billable operator time, and the accounting departments, and efforts at billing the expense, I believe we still made a reasonable profit.

We accomplish our "billing" for copies because we are a small firm by simply putting a clipboard with a billing sheet on it at the copier. The number of copies are written down for each client on each matter as the photocopy machine is utilized. For over fifteen years there has been equipment available that you can add to your photocopy machine that allows you to put in a client's number and the billing information will go immediately to your computerized billing system and show up on the client's bill.

We share office space with two other firms, and also share our photocopier. Each of these firms have their own clipboard for keeping track of photocopies. These photocopy expense sheets can become part of a color coded system for expenses either differentiated by type of expense or by which law firm is using the photocopy machine. At one time in our office, we had color coded paper for photocopy expense (light green), excess postage expense (light blue), file maintenance expense (light pink), and telephone long distance expense (white). After awhile it became clear that the paper color coding was not really necessary because the heading at the top of the clipboarded paper indicated in bold letters exactly what the expense that was to be recorded was. Over the next series of articles, we are going to continue to explain how we pass on expenses to our clients pursuant to our engagement letter that allows us to have our clients pay these expenses, allocate them to the clients that are actually using the things that can be billed, and thus be sure that the expenses are paid for by those clients where the expense is being incurred, and further to be able to keep our overall hourly rates for all of our clients at a very competitive level. I think you will find the philosophy about allocating expenses to those clients who are actually incurring them, instead of absorbing those expenses into your hourly rate that is to be spread over all of your clients, is very innovative. We are going to discuss how each and every expense that can be singled out, is singled out, for every client on every matter, and is billed to that client as opposed to it just being absorbed.

Talk to you next week.