Our 2015 Law Firms’ Survey is set in the context of a recovering UK market, but with ongoing challenging macro-economic conditions for global law firms.
Our 2015 Law Firm Survey shows a recovering UK market, with 82% of firms reporting UK fee income growth – that’s higher than at any time since 2008 – and many with double digit growth.
But it’s been a more challenging year for larger international firms, with the strength of sterling against the euro taking its toll for many, particularly when coupled with some difficult trading conditions in the Eurozone.
In the UK, the Top 10 have stagnated a little this year with more modest fee income growth than some of their mid-tier rivals, and a slight deterioration in profit margin, now just short of 40%. The Top 11-25 on the other hand have seen a strong recovery this year, benefitting from a sharper strategic focus, mergers and lateral hires, and tight control over key metrics such as cost and chargeable hours.
That leaves some of the 26-50 significantly adrift, and with a high proportion of firms outside the Top 25 now operating with profit margins of less than 20% we expect further consolidation or restructuring in the lower mid-tier.
We have seen a massive investment in technology this year as firms look to IT to improve efficiency, project management, pricing and profitability. New market entrants are continuing to bring disruption and are fuelling the need for innovation.
80% of firms recognise the need to respond to the Digital age as a strategic imperative, but only 23% have so far made changes to how they operate. We expect to see more in terms of digitally enabled business models, customer interaction channels and disruptive technologies in the coming year.
From the people perspective, recruitment and retention are firmly back on the agenda. With US law firms also recruiting aggressively, UK firms are reviewing lockstep models and remuneration strategies. We continue to see excess fee earner headcount when we compare actual chargeable hours against target – up to 12% of headcount in Top 25 firms for example.
Firms who can nail the art of flexible lawyering through use of contract lawyers will drive a real competitive advantage – just so long as it’s not at the expense of quality.
You can find a more detailed analysis of our findings in the full report out now via our website. Please do join the conversation on what these results might mean for law firms’ by following us on social media.