Legal Firm Survey: Growth, revenue, profit

By admin - April 5, 2018

Pitcher Partners recently conducted our fourth annual Legal Firm Survey. The survey was designed to gain further industry insight and to help firms make informed decisions during times of rapid change.

Download the full report here.

As in the previous three years, the majority of firms expect to grow over the coming year.

As media commentary continued to question the future of the legal industry during 2017, we waited with keen interest the results of our 2017 survey. 73% of respondents to our 2016 survey indicated an expectation of fee growth in the 2017 financial year. Interestingly, 73% reported a revenue increase in 2017. 76% are expecting revenue increases again in 2018 and on average, forecast revenue growth of 7%.

However, whilst 2017 respondents reported growth in fees, and also higher fees per equity partner ($1.915m in 2017 up from $1.51m in 2016), unfortunately an increase in revenue did not correlate to bottom line performance improvement. Reported average net profit per equity partner was $498k, or 26%, a decrease from 28% reported in 2016. In comparison, average net profit per equity partner for our accounting survey respondents was $233,968 or 40%.

This decline is consistent with sentiment that the traditional legal model is being squeezed. As finding and retaining good staff proves more and more difficult, we are noticing lower partner to lawyer leverage ratios are becoming more common. As leverage has historically been a major driver of profitability, strategic management of leverage will be an essential area of focus if profitability is to improve in the short term.

If leverage ratios continue to shift, it is important for firms to clearly understand which clients provide the highest profit by ensuring the firm’s financial information provides an accurate understanding of profitability per client. This also underlines the importance of understanding, development, implementation and monitoring of client acceptance and continuance policies. Close management of “scope creep” and ongoing cost reduction strategies also remain essential for firms looking to manage the bottom line. Firms should ensure that planned and budgeted expenditure on growth initiatives, such as adoption of new technology, are not limited by taking a short-term cost reduction over long term opportunity and growth prospects.

Download the full report here.

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