survey of law firm economics

8/4/2019 Survey of Law Firm Economics

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By firm size

NumBer of

Lawyers optimistic pessimistic uNcertaiN

2-8 50% 17% 33%

9-20 82% 6% 12%

21-40 67% 0% 33%

41-75 85% 2% 13%

76-150 87% 0% 13%

150+ 94% 0% 6%

taKiNG tHe

tHe oVeraLL mooD

temperature

This year, for the first time, we asked Survey of Law Firm Economics

participants to tell us how they felt about the financial picture

for 2011 and beyond. Would the economy recover? Would their

firms thrive? How would profits, billing rates and revenues fare in

2011? What follows is a measure of the mood from 200 firms that

answered this years survey.

Firms, this year, are a largely optimistic lot. Three-quarters of participants said they are optimistic about their

firms future in the year ahead. That was especially true at the largest firms in our survey. Nine out of 10 firms inthe 150-lawyer-and-larger category said they saw nothing but blue skies ahead. At the smaller end of the scale,

however, a few thunderclouds have developed. Half of firms in the two- to eight-lawyer range said they were

pessimistic or uncertain about the next year.

The economy may not be in a recession, firms said, but they didnt expect it to

grow dramatically, either. Again, larger firms were slightly more optimistic in this

category: 88% of 150-lawyer-plus firms saw the economy growing slightly compared

to 67% at two- to eight-lawyer firms.

This years Survey of Law Firm Economics shows a big increase in profits per partner, but

firms are hedging their bets for this fiscal years performance. Though 66% said PPP will be

up, most said it will increase by less than 5%. Firms in the 21- to 40-lawyer range were the

most pessimistic about profit performance, with 45% predicting a flat year or a decline.

optimistic78% pessimistic3% uNcertaiN19%

We asked: Looking ahead to next year, with respect to your law firm, are you:

aLL firms

tHe ecoNomy profits per partNerHow do you expect the U.S. economy to perform in the next year? How do you expect profits per partner to perform in 2011?

Grow slightly

Increased

them by lessthan 5%

They willgrow by 5%

or less

Growrapidly

Increasedthem by

more than5%

They willgrow by

more than5%

No growth

Held them flat

Corporate

19%

Bankruptcy/restructuring

7% Intellectualproperty

2%

Real estate

2%

Other

19%

They will be flat

Decline slightly

They willdecrease

.5%

12%

15%71%

67%

51%26%

22%

26%

3% 8%

Its no contest: Litigation is back, and will lead

revenue growth this year. Although the deal

market has picked up somewhat, more than half

of firms said they believed their work would keep

them in the courtroom.

The largest firms were the most aggressive about rate increases in 2011. All responding firms of more

than 150 lawyers said theyd raised ratesand more than a quarter said they pushed rates up by more

than 5%. Small firms didnt have that option. Among the smallest firmstwo to eight lawyers71%said they held rates flat and nearly a third of firms in the nine- to 20-lawyer range did the same.

No. of

Lawyers

iNcreaseD rates

By more tHaN 5%

iNcreaseD rates

By Less tHaN 5%

HeLD

rates fLat

2-8 6% 24% 71%

9-20 15% 55% 30%

21-40 4% 71% 25%

41-75 15% 75% 10%

76-150 9% 81% 9%

150+ 29% 71% 0%

practice GrowtHIn which practice area do you expect to see the most revenue growthin 2011?

What did you do with billing

rates for 2011?

BiLLiNG rates

aLL firms

By firm

size

Litigation

51%

the survey of law firm economics


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assessiNG tHe aLterNatiVesThe billable hour remains king for most of the firms participating in the Survey of Law Firm Economics. That said, 95%

of firms reported that they had engaged in some kind of alternative fee arrangement during the past year. Heres what

firms told us about the percentage of billings, the increasing use and types of arrangements:

Alternative fee arrangements

represented a quarter or less of

billings for 86% of firms. Just 29 of

the 200 firms we surveyed reported

that fee arrangements represented

a quarter or more of billings. Many

of those firms had fewer than 20

lawyers. In fact, in most cases, our

survey showed that the smaller a

firms size, the greater likelihood

it would engage in alternative fee

arrangements.

Last year did not represent

a wholesale move toward

alternative fee arrangements.

Just a bit more than a quarter of

firms said they saw an increase

in alternative billings. And firms

in nearly every size category

reported no change in the status

quowith one major excep-

tion. Some 63% of largest firms

surveyedthose with 150 law-

yers or moresaw an increase in

alternative fee billings last year.

Two types of alternative fee arrangements dominate the landscape: Flat

fees and contingent fees. It likely doesnt hurt that they are the simplest

arrangements to explain to clients (and to fellow partners). Although

smaller firms more frequently reported alternative fee arrangements, they

experimented less: the vast majority of alternative billings were flat or

contingent arrangements. Among the largest firms, capped and blended fees

were nearly as common as flat or contingent arrangements. And those firms

had more holdbacks and phased-fee arrangements.

fee arraNGemeNts:

perceNtaGe of BiLLiNGsIn 2010, what percentage of your firms billing was valued through an arrangement not basedsolely on hourly rates?

types of

arraNGemeNts

In 2010, what percentage of your firms billing was valued

through an arrangement not solely based upon hourly rates?

(Percentages below represent the number of respondentswho identified a particular type of fee arrangement.)

iNcreasiNG freQueNcy?What change did you see in the volume of alternative fee billings from 2009 to 2010?

5%5.5%

9%

19%

28%

61.5%

66%

none

Between 1% and 10%

no change

greater than 50%

Between 26% and 50%

Between 11% and 25%

Increase

6%decrease

defense contIngency fee 3%

other 4%

holdBack 6%

flat fee wIth shared savIngs

6%

Phased fee 9%

PartIal contIngency or

success fee 21%

caPPed fee 35%

Blended rate 44%

contIngency fee 75%

flat fee 83%



3/3

year

expeNses

per

Lawyer

2000 $144,568

2001 $155,120

2002 $152,562

2003 $158,972

2004 $155,952

2005 $161,892

2006 $167,366

2007 $170,363

2008 $167,256

2009 $159,521

2010 $169,288

yeareQuity

partNersaLL

partNers

2006 $365,000 $278,000

2007 $374,000 $279,000

2008 $353,000 $272,000

2009 $358,000 $272,000

2010 $383,000 $290,000

year

Net iNcome

per Lawyer

2006 $247,000

2007 $260,000

2008 $246,000

2009 $253,000

2010 $282,000

partNers:Equity partner compensation plunged in 2008 and made up just a little

lost ground in 2009. This year, however, the pay picture was much

brighter: Equity partner compensation rose by 7%. Among all partners,

including equity and nonequity, pay levels jumped from $272,000 to

$290,000the biggest increase in nearly a decade.

Expenses at firmsaveraged on a per-lawyer basisclimbed in 2010 to pre-recession

levels after declining for two consecutive years. The expenses-per-lawyer figure fell

5% in 2009the largest decrease in the 25 years we have tracked this metric. But

firms made up for lost time in 2010, when expenses rose 6.1%the sharpest increase

in expenses since 1997.

During the recession, revenues declined and firms kept profitability from collapsing by

sharply cutting expenses. This year, however, expenses rose dramatically. Luckily for

firms, revenue strongly outpaced expense growthand net income saw a strong 7.5%

increase.

oN tHe rise aGaiN

a Better Bottom LiNe

expeNses:

Net iNcome:

a BiG pay raise

6%

2%

wHere Does tHe moNey Go?

2%

1%

10%

17%62%

occuPancy

PromotIonal

equIPment

reference

staffIng

lawyers

other


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