Practice costs keep outpacing revenue

By James Barnes

01 October 2012 at 12:46 BST

Expenses have risen faster than revenues over the last five years, according to a survey of the UK's top firms, supporting similarly disappointing figures from their US counterparts released last month.

The cost reduction challenge

The research – conducted by The Lawyer newspaper – analysed the top 50 UK firms outside of the magic circle and discounted recent entrants. It found that during the last five years, the average cost per lawyer (CPL) increased by 20 per cent from £199,000 to £236,000. However, there has been only been a 12.8 per cent rise in revenue per lawyer (RPL), from an average £289,000 to £326,000.


But somewhat encouragingly, the survey also revealed that the growth in CPL is slowing, rising just 6.8 per cent over the last two years. Meanwhile, RPL held steady at 12.8 per cent.
Jeremy Dutton, director at global business advisers Huron Consulting Group, told The Lawyer: ‘If this trend were to reassert itself, it could have serious implications for the competitiveness of some firms. The really big challenge, however, is to reduce the direct costs of delivering the client service. In other words, the costs of lawyers required.’

Slashing fees

However, the managing partner of global law firm Baker & McKenzie’s London office, Gary Senior, said slashing fees may not solve all the problems. ‘It’s also about managing client expectations,’ he commented. ‘Pricing and the delivery of services is a very important strategic factor now and it can drive revenue. There’s been a clear shift in the market in the area of process improvement. It’s now on a par with other strategic issues that help a firm grow.’
Last month’s survey of US firms by Wells Fargo’s Legal Specialty Group revealed that despite average revenues rising by 3 per cent in the first half of 2012, overall profits fell by 0.7 per cent.


Also read...

LawAdvisor in start-up acquisition

Firm invests in legal automation with acquisition of early-stage consultation startup from Mills Oakley.