Capital efficiency
The time value of litigation capital
Why a smaller fee sooner can create more firm value than a larger fee years later — and the formula to check it.
Multiples hide time
A case that returns 3× its costs sounds better than one that returns 2×. But if the first takes four years and the second takes one, the second dollar can be redeployed three more times. Contingency capital should be judged per year, not per case.
JusticeCFO uses an annualized return: (net fee ÷ costs) raised to 1 ÷ years held, minus 1. Years held run from the dollar-weighted date costs were advanced to the date the fee reaches the operating account.
- 3× over 4 years ≈ 32% per year
- 2× over 1 year = 100% per year
- 2× over 2 years ≈ 41% per year
Add the carrying cost
Money in a case is not free. If it is drawn on a credit line, interest accrues; if it is the firm's own cash, it could have funded another matter. Carrying cost ≈ costs × annual rate × years held. Subtract it, along with costs, from the probability-weighted fee to see whether a case creates or consumes capital.
Court data shows why this matters: matters that reach trial take materially longer to resolve than the overall median, so the trial path lengthens every holding period it touches.
How to use it
Use annualized return to compare case types and intake decisions, and carrying cost to flag aged matters whose expected fee no longer covers their capital. These are planning estimates, not valuations, and they never replace the attorney's judgment about the client's best interest.