Law firms in the southeastern United States, including in Florida and Georgia, are seeing expenses grow faster than revenues—a trend that is shaving down profit margins, according to a survey by Citi Private Bank’s Law Firm Group.
The survey saw participation from 190 law firms of varying size—44 Am Law 50 firms, 35 Am Law 51-100 firms, 51 Am Law Second Hundred firms and 60 others— a group that includes boutique and niche firms. Figures for the southeast region were drawn from a sample of 22 firms on the east coast bounded by Virginia to the north and excluding Washington D.C.
Southeast revenues are up 6.8 percent for the year, outpacing the national 6.3 percent growth rate. David Altuna, client advisor and senior vice president of Citi Private Bank’s Law Firm Group, expects this figure to accelerate as end-of-year collections bring in more revenues for firms.
Driving the growth is higher demand—4 percent compared with the 2.5 percent national average—and higher rates charged for services, which climbed to 3.5 percent (though that figure is almost a full percent lower than other regions).
“It’s good to see demand, not just higher rates, drive growth,” Altuna said.
But the region is also seeing higher costs. Expenses are up 7 percent—more than a percentage point higher than the 5.9 percent national average. A balance like this, Altuna said, translates to lower profit margins for law firms.
Whether the Southeast will continue to see this trend will depend on the strength of end-of-year collections. But rising associate compensation put into motion this year could erase the revenue gains.
“It’s going to be hard to tell whether or not the southeast will continue to see profit margin compression because you’ll see acceleration in both cases,” Altuna said.