2021 Law Firm Benchmarking
Insight into legal sector financial performance as well as the key issues facing law firms against a backdrop of global uncertainty
Against a backdrop of another year of political and economic turbulence, this year’s snapshot of the legal industry's performance in the UK makes fascinating reading.
The big picture
In a period of unprecedented global disruption, we might have expected revenues to be challenged. Back in March 2020 most law firms were braced for the worst, but were these fears unfounded?
For the sector as a whole, the answer is a reassuringly positive one with aggregate revenue growth of 5.9% across the all-participant population. As we dissect the headline results, we once again see a number of firms growing with almost a quarter of firms returned solid growth in excess of 10%, but around a third saw their top line shrink compared to their 2020 fee levels. Continuing a somewhat concerning theme, the proportion of regional firms with falling fee income climbed to 43% this year.
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City firms
The City continues to look resilient and a notable 85% of this year’s City firm participants told us that their results exceeded expectations, in particular the final profit result. Participants reported aggregate revenue growth of 7.2% and average profit per equity partner (PEP) increasing by 17%.
Strong service demand manifested in the need to continue to grow headcount, in particular fee-earning teams.
The demand for talent continues in the City with all participant firms highlighting ‘retention of our key people’ and ‘availability of people with the skills we need’ as high priority business risks. We anticipate further inflationary pressures on salaries in the coming year if service demand continues at the current levels.
Regional firms
This year regional firms reported modest average growth, however once again they have posted a polarised set of individual results. Although participants reported aggregate revenue growth of 3.8% and average profit per equity partner (PEP) grew by 28%, the proportion of firms posting a fall in revenue grew to 43% but around one-fifth grew revenues by more than 10%.
Two thirds of participants told us that their final results greatly exceeded expectations. The COVID-19 situation forced many management teams to look more closely at their operations including cash flow management and this seems to have paid off.
Demand levels have increased with average fees per fee earner grew by 5% this year and four-fifths of firms planning to increase fee earner numbers in the coming year.
The pandemic
Over 15 months since the beginning of the COVID-19 global pandemic firms shared with us some of their key learnings and how this will impact future business decisions such as recruitment strategy, training and development and remote and agile working.
Following the use of the government’s suite of initiatives to support businesses impacted by the pandemic, some firms told us of their decisions to make voluntary repayments following the stabilisation of the UK legal market.
Top three drivers to attract and retain personnel
Looking forward
Firms continue to remain positive about their own future performance and the UK legal sector. More so than they do for the UK economy as a whole, although we also find that there is less pessimism regarding the economy than we saw this time last year.
People issues
continue to be at the top of firm’s business critical risks with availability
of people and the skills we need, retention of our key people and health and
wellbeing of our people voted the highest.
How we help law firms
Our Professional Practices team
Our professional practices team advises law firms of all sizes on their growth plans, always tailoring our advice to best suit their needs.