The newly released Altman Weil “Law Firms in Transition Survey 2011” finds confidence high among U.S. law firm leaders in firms of all sizes.
Overall economic performance is rebounding, with two thirds of all firms surveyed reporting increases in gross revenue in 2010 and nearly three quarters reporting increases in revenue per lawyer and profits per equity partner.
Standard hourly billing rates are up significantly this year, with firms reporting or planning a median four percent increase in billing rates for 2011.
Continued reductions in overhead costs and the strategic shrinking of firms’ ownership ranks are contributing to profitability.
“If firms are finding their feet again post-recession, it is on new ground with a number of new factors in play,” said Altman Weil principal Tom Clay. “And although most firm leaders seem to recognize the changes, it’s not yet clear whether they will be able to manage them effectively.”
Following are some survey highlights:
• 67 percent of law firms reported an increase in gross revenue in 2010; revenue per lawyer was up in 73 percent of all firms; and profits per equity partner rose in 73 percent of firms.
• Overhead costs were down in 53 percent of firms in 2010.
• The amount of non-hourly billing in 2010, measured as a percentage of revenue, increased in 58 percent of all firms and in 81 percent of firms with 250 or more lawyers.
• Only 12 percent of firms report that alternative fee arrangements are more profitable than hourly billing.
• 27 percent of law firms de-equitized partners in 2010 and 16 percent will do so in 2011. At the same time, 32 percent of firms made fewer partnership offers in 2010 and 18 percent will do so in 2011. Larger firms are more likely to take these actions than smaller firms.
• 92 percent of all law firms plan to acquire laterals partners in 2011.
• 87 percent of law firms are planning to add associates to their ranks in 2011. Only 18 percent of firms plan to remove associates this year, down from 42 percent in 2010.
• Only 18 percent of those surveyed think that reduced associate salaries will be a permanent trend, down from 32 percent who thought that last year.
• 60 percent of firm leaders expect that the increased use of contract lawyers will be a permanent trend, up from 52 percent last year.
• 41 percent of all firms believe that outsourcing legal work will be a permanent part of the new legal market.
• 47 percent of all firms are concerned that they are not prepared to deal with the retirement and succession of Baby Boom lawyers — the top concern identified.
• 94 percent of law firms believe that the focus on practice efficiency is a permanent change in the profession.
• Other top trends include more price competition (90 percent), fewer support staff (88 percent), more commoditized legal work (81 percent), more non-hourly billing (75 percent), and fewer equity partners (68 percent).
• Only 16 percent of firm leaders expect permanently lower profits per partner.
• Leaders score their confidence as an “8” on a zero to 10 scale when asked about their firms’ ability to keep pace with change.
Conducted in April and May 2011, the survey polled managing partners and chairs at 805 U.S. law firms with 50 or more lawyers.
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