Reading through The Law Society's Financial Benchmarking Survey from last week, there are a few points that stand out in the core legal delivery model of the law firms that participated
Throughout the report, larger firms have greater fee income growth in % terms (fig. 4.1), higher fee income per equity partner (fig. 4.4), higher PEP (fig. 6.1) and are more optimistic about growth (fig. 10.1)
This is striking for a couple of reasons:
- We're not talking about big 'Big Law' firms here, we're talking about firms ranging from < £2m to £10m+ and an average of £7.8m in fee income
- 'Bigger is better' is evident for all quartiles, so the lower quartile £10m firm has higher growth than the lower quartile £5m, as does the median and upper quartile, and so on
This is not a case of bigger firms benefit from economies of scale in the back office (which would be a less clear cut claim based on the data in this report), this is purely an observation on top line fee income stats
Although beneath those headlines, it is a more mixed picture
Larger firms are correlated with higher fee earner gearing (fig. 4.7) which will help with those PEP figures, although note also larger firms paying higher fee earner salaries (fig. 5.1) so I wouldn't interpret this as only partners stand to benefit from bigger firms
However, chargeable hours per fee earner (fig. 4.8) generally (although not quite as clearly) decrease as firms get bigger
With median chargeable hours of 773 standing at 48% of the 1,600 capacity indicated in the report - is "fee earner" even the right term to describe a population that records less than half the available time to client work?
We are all fee burners now 🙂
(Half)-joke aside, this stands out as the single biggest lever most firms in the survey need to address to improve revenue and profitability
I doubt that the typical lawyer is logging off work on Wednesday lunchtime and calling it a week
Instead, I suspect the issue is a combination of poor time recording discipline and/or non-chargeable demands crowding out client work, with the balance of those factors differing from firm to firm.
The missing piece of the puzzle here is around price - are bigger firms able to achieve a higher effective rate per hour worked?
It's a very different part of the market, but PwC's survey on the Top 100 firms back in October indicates that this is the case - so my assumption here is yes this will also be a factor for smaller firms in The Law Society survey as well, with larger firms able to charge more than smaller ones
As ever, a great job by the Hazlewoods team pulling this together, the report is well worth a read in full.
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