How small and midsize firms weathered the storm

The National Law Journal

08-30-2010

Rough economic winds battered small and midsize firm revenues during 2009 — though cuts in expenses helped those firms eke out small increases in profits.

That's according to The Survey of Law Firm Economics, a joint project of ALM Legal Intelligence and The National Law Journal. The survey is open to U.S. firms of all sizes, but the majority of those who take it have fewer than 150 lawyers. The results provide a deep look into the financial state of smaller and midsize players during fiscal year 2009.

How did those firms fare? In 2008, revenue per lawyer declined by the largest percentage in 25 years — nearly 5%. In 2009, the figure dropped again, this time by less than 1%. Although the decrease was slight, a two-year drop in revenue-per-lawyer figures is unprecedented for firms taking this survey.

But law firms countered last year's sluggish revenues with a far more aggressive cost-cutting campaign. Expense per lawyer declined by 5% in 2009 after dropping 2% in 2008. A 5% cut may not sound like much, but it's the largest-ever in the expense-per-lawyer figure and the first time that expenses have fallen two years in a row. More often, a decrease in expenses one year has been followed by an even larger increase in expenses the next.

Cost-cutting helped profits rise. Net income was up 2.7%. Before firm managers cheer, consider: 2008 saw profits fall faster than at any time since 1985. Firms have yet to make up all of that lost ground.

A few other less-than-encouraging signs emerged. Although clients, on average, paid their bills within 2.3 months, realization rates declined from 88% to 85.9% and partners wrote off 7% more time last year than in 2008. Billable hours dropped for both partners and associates.

Firms tried to make up the ground by raising rates. Hourly rates for the average equity partner are now at an all-time high among surveyed firms. Will clients let firms get away with that maneuver again? Tune in next year. — David Brown

SNAPSHOT OF KEY TRENDS (.pdf)
Download this poster of infographics highlighting: Revenue per lawyer • Partner compensation • Billing rates •  Associate-to-partner ratios •  Law firm expenses •  Compensation gender gap •  and more.

REGIONAL RESULTS (.pdf)
A map of the survey results by geographic region, including per-partner on revenue, expenses, billing rates, and compensation.

About this survey
The Survey of Law Firm Economics's 300-plus pages provide detailed data on fiscal year 2009 and are designed to help finance teams benchmark their firms' performance. In this special report, we offer an overview of key trends and results. For more information, visit almlegalintelligence.com and sign up for a free webinar with more on the survey from NLJ editor David Brown.