California Firms Lead in Revenue, Demand Growth in 2017, Citi Says
Northern and Southern California were some of the most lucrative regions in the U.S. for law firms in 2017, according to a recent analysis by Citi Private Bank's Law Firm Group.
February 13, 2018 at 08:47 PM
4 minute read
Law firm revenue was up in both Northern and Southern California in 2017, outpacing most other regions surveyed in a recent report from Citi Private Bank's Law Firm Group.
The gross revenue for Northern California firms increased by 7.2 percent in 2017, which was the highest among the 11 geographic regions analyzed, said John Wilmouth, senior client adviser in Citi's law firm group. Southern California firms saw gross revenue growth of 5.9 percent, good enough for fourth-best in the country when compared to other regions.
Both regions outperformed the industrywide average of 4.5 percent, which was greater than the 3.8 percent growth seen in 2016.
For its report, Citi surveyed a sample of 189 firms, including 81 Am Law 100 firms, 53 firms in the Am Law Second Hundred and 55 niche firms or boutiques. Wilmouth noted that there is a dispersion in performance in California, with some firms far outperforming others. In reality, only about half of the firms were above the industry average, he said.
“The big driver is demand was up across the board,” said Wilmouth, discussing a metric that is derived from hours logged by qualified timekeepers.
Total demand improved by 0.7 percent in 2017, thanks to a strong fourth quarter that saw the legal industry recover from what had been a sluggish start to the economy under the Trump administration. During the first nine months of last year, demand was up only 0.2 percent.
Demand in Northern California increased by 4.8 percent in 2017, which was the highest among all regions, Wilmouth said.
“What makes Northern California so unique is that all of the law firms we looked at have increased in demand,” he added.
Citi found that 92 percent of Northern California firms experienced demand above the national average. Despite that increase, Wilmouth said that billing rates in the region only went up by 3.3 percent last year, which is below the 3.7 percent increase seen nationally.
In Southern California, demand was up by 3.1 percent, while 83 percent of firms in the region were above the industrywide average. Southern California firms, on the other hand, saw an increase of 3.9 percent in billing rates, according to Citi.
“That could be due to a couple of things, it could be due to stronger rate increases across the board, but It also could be due to the change in the mix of underlying timekeepers,” Wilmouth said. “For instance, if there is an increase of proportional work done by partners, who generally have the highest billing rate, then it could impact the overall average increase for all lawyers at the firm.”
Head count growth in Northern California rose by 3.6 percent, which was again the highest among all U.S. regions surveyed by Citi. In Southern California, head count grew by 3.1 percent. Both exceeded the national average for head count, which increased by 1.9 percent last year, slightly more than in 2016.
Sometimes, when firms hire more lawyers, if the demand doesn't keep up, productivity decreases, Wilmouth said. However, Citi found that was not the case for California firms.
Productivity was down 0.2 percent industrywide, as lawyer demand growth of 1.7 percent lagged slightly behind head count growth of 1.9 percent. But in Northern California, firms' productivity increased by 1 percent in 2017, while productivity for Southern California firms was up 0.3 percent last year.
Expenses for California firms were higher than other regions, in part due to the increase in head count for salaried lawyers and the impact of associate salary increases that began to take effect halfway through 2016, Wilmouth said. Northern California firms saw their expenses grow by 6 percent last year, while Southern California firms experienced a 4.8 percent increase.
Nationally, expense growth was up 4.5 percent for 2017, compared to 3.4 percent in 2016. Total lawyer compensation was up 7.1 percent in Northern California and 8.5 percent in Southern California, the latter of which saw that percentage tied with Pennsylvania.
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