Is Revenue Increasing at AmLaw 100 Law Firms?
Although the economy seems to be thriving, everyone in BigLaw still wonders: are the biggest law firms actually prospering? After all, 2014 was an impactful year for AmLaw 100 law firms. To recount, law firm mergers were active. In particular, the mergers between Locke Lord and Edward Wildman Palmer, and Squire Sanders and Patton Boggs caught some serious attention. Further, Bingham McCutchen merged into Morgan Lewis, which, before its merger, was one of the market’s most profitable firms (Johnson). In conjunction with these events from 2014, 2015 has been equally as active. Experts report that this is due to the improved economy. Additionally, strong transactional and tech markets also increase merger activity.
Revenue and Profitability
So, what does this mean for revenue and profitability? How are the big firm maintaining and how are they growing? How have these firms managed to find a way to keep their revenues rising? Experts agree that firms are continuing to increase revenue by establishing higher hourly rates.
According to a report from Wells Fargo Private Bank’s Legal Specialty Group, law firms increased their hourly rates in the first half of 2015. While profits increased an average of 4.1% at 60 of the most profitable firms that the Bank surveyed, the amount of time recorded by a particular firm’s lawyers (or the demand for legal service hours) only increased 1.7%. Among the lesser-grossing law firms, the Bank’s study found that revenue was up 2.7% and demand for legal hours was flat in the first half of this year.
To further support the contention that law firm profitability is increasing because of higher hourly rates rather than an uptick in the demand for lawyer hours, Wells Fargo noted that lawyer hourly rates indeed did rise. Specifically, the Bank found that the average lawyer hourly rate rose roughly 3.3% across the board. In actual dollar terms, the Bank found that equity partners charge an average of $787/hour across the United States and that the average associate hourly rate is $519/hour.
So, how do clients respond? To further complicate hourly rate calculations, once a law firm increases its rates, typically, the client does not passively accept the increase. According to Joseph Mendola (a senior director in Wells Fargo’s Legal Specialty Group), subsequently, clients will ask for fee reductions through a discount.
In addition to finding that law firms are driving revenue/profitability with an increase in hourly rates, Wells Fargo gathered more intriguing findings from its mid-year poll. Highlights are found below:
- Attorneys are not billing as much as they have in the past. In fact, the practitioners in the 100 most successful law firms are predicted to bill an average of roughly 1,650 hours for the 2015 year. According to Mendola, those hours are significantly less than the hours billed before the recession. The pre-recession time frame had hours around up to 1,800.
- The highest grossing firms are not quite so unique in comparison to the rest of pack. There was more of a difference between the high-profit firms and the other firms in the 2013 data. But, this year, the highly profitable firms experienced 2.1% more in revenue, which is lower than the general average. Mendola believes this is because the first six months of 2014 were good. Additionally, Wells Fargo uncovered that senior professionals are the ones who are bringing the number of hours down.
- Law firms are still dependent on their partners to finance their business. The average amount of partner-contributed capital that firms possess climbed to 7.3%.
- Strangely, there are more attorneys present at the surveyed firms than the previous year. Since there is not much of a demand, it seems logical to have fewer lawyers. “You would think firms would skinny down to improve productivity,” Mr. Mendola said (Randazzo).
Overall, America’s top firms are doing well in relation to revenue. Firms have seen increased growth in gross revenue, revenue per attorney, and profits for every partner (The American Lawyer).
So what do these numbers mean to you and are they sustainable?
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Are you looking at your firm’s revenue and profitability and don’t like what you see? Are you interested in finding a new firm that has a better platform for your practice? If so, contact a Career Counselor with Lexacount Search’s Career Consulting Services. Or, if you are seeking a position as a lawyer or legal assistant, contact a Search Consultant from Lexacount Search’s Legal Group.
Johnson, Chris. “Am Law 100 Analysis: The Superrich Firms Pull Away.” The American Lawyer. The American Lawyer, 27 Apr. 2015. Web. 6 Oct. 2015.
Randazzo, Sara. “How Can Law Firms Increase Revenue? Charge More.” Law Blog RSS. The Wall Street Journal, 31 Aug. 2015. Web. 04 Oct. 2015.
The American Lawyer. “The 2015 Am Law 100: Rich and Richer.” The American Lawyer. The American Lawyer, 27 Apr. 2015. Web. 6 Oct. 2015.