I regularly review and summarise benchmark reports for law, accountancy, property and consultancy businesses. So here are two 2023 benchmarks for law firms: The Law Society/Hazelwoods and the Institute of Legal Finance & Management (ILFM)/Crowe. It’s interesting to compare the results from the two benchmarks.
The Law Society and Hazelwoods
Law firms show resilience despite difficult times, Financial Benchmarking Survey shows | The Law Society (10 March 2023)
Resilient law firms reported a strong performance in fee-income and continued to invest in staff in 2021/2022, despite a challenging economic environment, according to the latest Law Society Leadership and Management Section Financial Benchmarking Survey.
The survey is written and produced by Hazlewoods LLP (accountants) and sponsored by Lloyds Bank. The Financial Benchmarking Survey, now in its 22nd year, collected financial data from 155 small and medium-sized solicitor firms with a combined income of more than £1.1 billion.
- Investment in staff has increased – An increase in fee-earner head count of 3.2% and a 2.1% increase in support staff
- JMW Solicitors LLP shared why client care is at the heart of their firm, and explained how their dedicated client care team ensures the best service for existing and potential clients
- Retaining staff in a competitive market – Total salary costs as a percentage of fee income also increased, rising by 0.4%, from 58.5% in 2021 to 58.9% in 2022
- Dana Denis-Smith, chief executive officer at Obelisk Support and Law Society Council representative for women solicitors, said that, rather than simply increasing salaries, a ‘cultural reset’ is needed to tackle issues such as inclusion and accessibility to attract the next generation of lawyers
- 75% of participants reported year-on-year growth in fee income in 2022. Nearly half of firms (46%) saw growth of more than 10%, and median practice fee income increased by 9.2%.
- Median fee income per equity partner increased by 5.4% from £891,693 in 2021 to £939,525 in 2022
- Median net profits per equity partner increased by 39%, from £146,417 in 2020 to £203,199 in 2021. This is likely driven by a combination of:
- Median net profits per equity partner dropped by 1.8% from £203,577 in 2021, to £199,846 in 2022, down on a strong 2021, but performing well above pre-COVID levels
- Median spend on non-salary overheads per fee earner (everything except salary costs) increased by 6.4%
- Hours are down (Is this due to productivity or something else?) – Median hourly cost of a fee earner (based on 1,100 chargeable hours per year), was £111.48, and median fees per hour were £126.30.
- The total number of chargeable hours was collected for the first time in the 2022 survey – it found that median number of chargeable hours had decreased compared to 2021, coming in at 841 hours.
- Looking to the future
- Firms reviewing this year’s survey might like to consider the growth in fee income, the 10-day reduction in lockup and the median equity capital trends
The results are in: Financial Benchmarking Survey 2023 | News | Communities – The Law Society
Institute of Legal Finance & Management (ILFM) and Crowe accountants
ILFM – The Institute of Legal Finance and Management
- Revenue
Overall, most firms reported a pleasing 2021/22 year, with over half of participants stating their results exceeded expectations and only a tenth considering performance to be slightly below expectations.
- Profitability
Crowe’s analysis on this specific factor was that just over two-thirds of participating firms grew their profit pools (77% of City and 61% of Regional firms). Almost 40% of firms struggled to match last year’s profit levels as post-pandemic costs such as travel, business development and recruitment re-emerged.
- People
There was a 4.2% increase in headcount across all the benchmarking survey participating firms, together with average salary increases of around 5%, resulting in a near 10% increase in people costs.
The four drivers attracting and retaining talented personnel:
- 70% baseline salary
- 48% flexible / agile working policy
- 38% firm culture and values
- 33% firm brand and reputation
- Working Capital
Last year Crowe reported that just over two-thirds of firms planned to focus on improving lock-up and reducing their credit risk.
From the insights in this latest survey, they succeeded to do just that, with Regional firms reducing overall lock-up by seven days and City firms by one day.
- Working Practices
The feedback found that over a half of respondents reported that their teams are not working from the office for more than 50% of the time and it is the lawyers working in City firms who are the ones most likely to be working remotely.
Around 30% of Regional firm participants reported their people only spend approximately one day a week out of the office.
- 65% considered remote working has a negative impact on supervision of team members
- 50% thought of this is a temporary issue
- 15% thought of this was a long-term issue
- Future Focus
The key factor of PEOPLE continues to top the list of priority risks for most firms, with training and development coming into greater focus this year.
Full results shown here: 2022 Law Firm Benchmarking | Crowe UK
Other benchmark posts
Law firm analysis – MHA Legal Benchmarking Annual Report 2020 (kimtasso.com)
Law firm financial benchmarking from NatWest (kimtasso.com)
Annual International Marketing Benchmark – PM Forum and Meridian West (kimtasso.com)
Meridian West’s Marketing Leaders Benchmark 2022 (kimtasso.com)
law firm web site performance – benchmark by Draw (kimtasso.com)
Client satisfaction benchmarks – How do you measure up? (kimtasso.com)
