Revealed: gap between law firm costs and revenues soars over five-year period

The cost of lawyers has accelerated at a faster pace than the revenues they have produced over the last five years, but in the last two years that trend has started to reverse, The Lawyer UK200 reveals today.

The research, which analysed the top 50 UK firms outside the magic circle and discounted new entrants, shows that over a five-year period the average cost per lawyer (CPL) figure has increased by 20 per cent from £199,000 to £236,000.

This compares with a 12.8 per cent rise in revenue per lawyer across the group, from an average £289,000 to £326,000.

In the last two years, however, the rate of growth in CPL has slowed, rising 6.8 per cent from £221,000 to £236,000 while RPL has increased by 12.8 per cent from £293,000 to £326,000.

According to Huron Consulting Group director Jeremy Dutton: “If this trend were to reassert itself, it could have serious implications for the competitiveness of some firms.”

He continued: “The really big challenge, however, is to reduce the direct costs of delivering the client service. In other words, the costs of lawyers required.

“As a group, it doesn’t appear from the data that it’s made any appreciable inroads in that area. To do so requires a mindset shift within the firms.

“If the CPL trend over the five years from 2007 to 2012 were to reoccur, the risk of failure of firms that couldn’t maintain their market positions will increase,” Dutton warned.

The Lawyer surveyed several industry figures about how they were working to reduce costs. “More use of staff on a project basis, less expensive central London space and proper outsourcing are all sensible measures,” responded Ropes & Gray UK co-managing partner Maurice Allen.

For Baker & McKenzie London managing partner Gary Senior, however, finding value was not as simple as slashing fees. “It’s also about managing client expectations,” he said. “We’ve been doing fixed-price elements for M&A deals for years.

“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.”

The most comprehensive data on the leading law firms that The Lawyer has ever produced, The Lawyer UK 200 2012 full online version is now available to download.

This full version features 126 editorial pages including full write ups of the top 200 law firms as well as over 30 pages of financial and headcount data.

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