A firm that bills hourly or on retainer has revenue a buyer can read straight from its books. A personal injury firm is different: most of its value sits in cases that haven’t settled yet. Two firms with the same revenue last year can be worth very different amounts depending on what is in their case inventory today, which is why valuing a contingency practice takes more than a multiple of trailing earnings.
Buyers who are used to fee-for-service businesses tend to discount contingent revenue as uncertain. Our job on the sell side is to show that the pipeline is measurable, so it is priced as an asset rather than treated as a risk.
Why Contingent Revenue Is Harder to Price
Contingency fees arrive in uneven amounts at uneven times. A single large verdict can make one year look exceptional, while a year of heavy case intake can look weak because the fees haven’t been earned yet. Retainer revenue, by contrast, is steady and largely predictable from month to month.
- Settlement timing varies by case type, venue and insurer.
- Case costs are advanced months or years before any fee is collected.
- Referral and co-counsel arrangements split fees in ways buyers need to see clearly.
None of this makes a contingency practice less valuable. It means the valuation has to rest on the inventory and the firm’s track record of turning cases into fees, not on a single year’s profit and loss statement.
“In a contingency practice, last year’s earnings tell a buyer what happened. The case inventory tells them what they are buying.”
Valuing the Case Inventory
We build a case-by-case model of open matters: case type, stage, expected resolution window, costs advanced and historical fee outcomes for similar cases. Grouping cases this way lets a buyer see expected fees by quarter, and it lets you negotiate how fees on pre-closing cases are shared after the sale.
Clean data matters as much as the model. Case-management records that match the books, documented referral agreements and a clear history of settlements and verdicts all shorten diligence and reduce the discount a buyer applies for uncertainty.
Blended Practices and Retainer Work
Many firms carry some retainer or flat-fee work alongside their contingency cases. That recurring revenue is valued closer to a traditional earnings multiple and can steady the overall picture, so it should be shown separately rather than buried in total revenue.
Whether your firm is entirely contingency-based or blended, the goal is the same: present each revenue stream in the way a buyer is equipped to price it. A confidential valuation audit before going to market shows you where your firm stands and which numbers to prepare first.