The revenue picture for law firms in 2012 was bright for large law firms — and bleak for smaller shops.
The Survey of Law Firm Economics, a joint project of The National Law Journal and ALM Legal Intelligence, shows that at law firms with more than 150 attorneys, revenue per lawyer (RPL) rose by 8.5 percent last year. But at law firms on the other end of the spectrum — those with one to nine attorneys — revenue plunged by 8.1 percent. The average per-lawyer gross receipts at larger firms were $499,518, compared with $302,818 at the small firms.
Overall, per-lawyer revenue inched up by 1.1 percent at law firms of all sizes during 2012 — welcome news compared with 2011, when it sank by 4.3 percent.
At the same time, profits per lawyer were up ever so slightly — by 0.3 percent — but that still represented an improvement over 2011's decline of 4.2 percent. A 2.6 percent increase in expenses per lawyer in 2012 contributed to the basically flat profits number, compared with a decrease in expenses by 4.4 percent during 2011.
Compensation for all attorneys rose by 1.5 percent in 2012 to an average of $296,010. Senior partners made $351,290 while midlevel partners pulled in $194,036. Midlevel associates' compensation was $133,193, on average.
The survey results indicate a "recovering economy that is tolerating some rate increases," law firm consultant Peter Zeughauser said. Large law firms have become "more tightly managed," partly through layoffs of underperforming attorneys, he added.
Overall, the average hourly billing rate in 2012 for partners was $369, up by 4 percent. The average hourly rate for associates was $242, up by 4 percent as well.
The 2013 Survey of Law Firm Econ­omics marks the 41st year for the study. Law firms ranging from one to more than 150 lawyers provide information about management, financials, hourly rates, billable hours, compensation and personnel ratios. About 150 firms provided responses.
The reason for the glaring difference in revenue at large firms versus the smallest firms stems from the types of clients they attract, according to law firm consultant Joel Henning.
"Clients of smallest firms are individuals, entrepreneurs and small family businesses — restaurants, small retailers — with marginal operations," Henning said.
Clients with thin margins are slow to pay their lawyers if they see increases in expenses — like those anticipated from pending changes to the health care laws, Henning said. "They can't pay lawyers like midsize and larger companies."
That's likely the reason that the smallest law firms were less inclined to raise rates. Asked if they expected to increase what they charge, 43 percent of firms with one to nine lawyers said they did, while 99 percent of the largest firms said they expected to charge more.
With revenues, overall, on the plus side, lawyers reported feeling positive about the future. Some 82 percent said they were optimistic about 2013, while just 2 percent described themselves as pessimistic. Sixteen percent were uncertain.
LITIGATION GROWTH FORECAST
Asked what practice areas they thought promised the best results, nearly 46 percent said they expected growth in litigation. Law firms with more than 150 attorneys had the highest hopes about litigation, with 64 percent expecting growth in the area.
Law firms also were upbeat about profits per partner. Nearly 66 percent expected them to grow this year, and about 21 percent of those anticipated that they would climb by more than 5 percent. Twenty-five percent of the firms looked for partner profits to remain flat, and 9 percent expected partner profits to drop.
The survey parsed the results for billing rates, compensation and hours worked by region. The highest equity partner hourly billing rate was in the Middle Atlantic, at an average of $409. That region, comprising New York, Pennsylvania and New Jersey, also saw the highest nonequity partner rate, at $417, and the highest associate rate, at $279.
The region with the lowest hourly billing rate for equity partners was the West North Central, at $290 per hour. That region includes Kansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. It also had the lowest nonequity partner rate at $247 and the lowest associate rate at $192.
Regarding compensation, the West South Central region had the highest partner compensation, with a median of $336,282. That region includes Arkansas, Louisiana, Oklahoma and Texas.
The East South Central region, which includes Alabama, Mississippi and Tennessee, doled out the highest compensation for associates and staff attorneys, at $156,109.
Billing the most hours were associates and staff lawyers in the East South Central region. The median number of hours billed there was 1,850. Lawyers billing the lowest number of hours were in New England, where partners billed 1,473 hours. The billable hour by far was the most common method of charging for services, but a full 95 percent of firms said they used alternative billing arrangements at least some of the time. About 60 percent of the firms used alternatives on less than 10 percent of their matters, and 21 percent used them 11 percent to 25 percent of the time.
Leigh Jones can be contacted at email@example.com.