Law firms financially resilient despite partner profit shedding

Average revenue per partner increased to $1.4m in FY17 while the earning gap between small and large firms continues to narrow.

Melbourne, AUSTRALIA — 23 January 2018 — A  study of Australian law firms has found most are financially resilient and adapting well to an increasingly competitive market. The seventh annual  ALPMA Crowe Horwath Financial Performance Benchmarking Study, developed by Crowe Horwath and Australasian Legal Practice Management Association (ALPMA), indicates law firm profitability remains strong despite increasing disruption.

Growth

Profit margins remain strong, sitting between 54 and 64 per cent for the financial year ending 30 June 2017, with close to two in three (64 per cent) participating firms meeting or outperforming expectations.

“Despite the sluggish economy, client pressure and increasing competition, three quarters of firms surveyed expect to grow in 2018 by at least 10 per cent, with the majority of growth being generated from new client prospects,” said Dion Cusack, President, ALPMA.

Average revenue per partner increased to $1.4 million with the partner earnings gap narrowing between firms of different sizes. Partners are investing in new technology and recruitment of new partners to maintain a strong financial position.

“Barriers of entry for new law firms are low and firms are shedding profits per partner to invest in a new breed of firm and in the next generation of partners,” said Andrew Chen, Partner, Crowe Horwath, who led the research.

“The study showed that Australian law firms are shifting their focus from cost savings to investing in their firms and people. There is also little interest in offshore resourcing or contact based labour in the current environment,” said Cusack.

Threats

Most participants (57 per cent) perceive retirement of partners as the greatest threat to growth. Other threats include the emergence of online legal services and continued demand from clients for better value.

“A quarter of participating firms have partners retiring within 18 months, it’s important that firms ensure they have strong succession plan in place to counter this risk”, said Chen,

Pricing

The study revealed there is little appetite within the industry to move to alternative pricing models with four out of five surveyed firms continuing to use the traditional pricing method based on hourly rates to bill their clients. 85 per cent of those surveyed said they had no intention of changing their pricing methodologies.

Click here to view the full report.

ENDS

About the Report

The ALPMA Crowe Horwath Financial Performance Benchmarking Study uses Crowe Horwath’s proprietary benchmarking tool, Open Measures, to compare participating Australian law firms. This is the seventh consecutive year the study has been undertaken with the aim to assess the financial health of legal practices and help firms benchmark their performance to their peers.

About Crowe Horwath

Crowe Horwath Australasia, part of Findex, which delivers the Family Office service across Australia is the largest provider of practical accounting, audit, tax, business and financial advice to individuals and businesses from a network of over 80 offices throughout the country.

About ALPMA
The Australasian Legal Practice Management Association, (ALPMA), is the peak body representing law firm and legal department leaders and managers. ALPMA provides an authoritative voice on issues relevant to legal practice management.  Members of ALPMA provide professional management services to legal practices in areas of financial management, strategic management, technology, human resources, facilities and operational management, marketing and information services and technology.

 

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