Rising demand and rates pushed law firm revenue up 5.5 percent in the first half of 2018, the strongest performance since the recession.
It was more than a half-point better than the year-ago period, according to a report by Citi Private Bank’s law firm group.
“Looking ahead, the outlook for the rest of the year is very positive” despite some pressure on the expense side, said research co-author Gretta Rusanow, the group’s head of advisory services.
The report sampled 186 firms with 77 among the largest 100. Fifty-three others comprised the next rung of large firms, or those residing in the next 100, and 56 were niche or boutique firms.
Firms are not named, but the information they provide is aggregated to identify industry financial trends.
The 40 out of 50 largest firms which reported their metrics outperformed. The biggest reported a revenue increase of 6.8 percent. Roughly 3.2 percent came from rising demand, and 4.8 percent from higher bill rates.
While this group also added more headcount than others, it also showed the greatest improvement in attorney productivity. And collections from past client work were set to be better than other, smaller firms.
The picture was less rosy among firms in the next group in the top category, those in the 51 to 100 ranks. Their revenue growth was 3.7 percent, and other measures such as productivity generally lagged.
However, law firms in the second 100 category saw revenues up only 1.3 percent. They were behind on other metrics and were the only segment where growth in expenses exceeded growth in revenues.
Smaller, niche firms had slightly stronger revenue growth, at 6.9 percent, than at those in the top group. Their demand was up 1.6 percent, and billing rates up 3.6 percent.
Firms that have a dispersed geographic reach saw the strongest revenue performance, reaching 8.1 percent. Those firms have at least 25 percent of lawyers based outside the United States.
Firms that had fewer lawyers outside the United States did less well, underscoring the strategy of the largest multinational firms which have numerous offices and a phalanx of lawyers spread around the globe.
The report was sanguine about the second half of 2018, noting that factors like demand and collections were positive. However, Rusanow noted that there is upward pressure on expenses for the remainder of the year.
“Law firms will have to take into account the recent round of associate compensation increases,” she said.
Such expenditures also will be driven higher by larger headcounts, although most of those are among salaried employees and not among equity partners.
Lawyer headcount grew 1.8 percent, slightly less than during the same period in 2017. However, the number of equity partners declined by 0.5 percent – the continuation of a seven-year trend of downward number of partners who share in the firm’s profits.
Going forward, the law firm collection cycle is getting a little longer, but the report found that firms were still poised to pick up some of the accounts receivable and unbilled time in the upcoming quarter and beyond.
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