Archive for the ‘Law firm finance’ Category

New legal industry surveys

August 8th, 2013 by Altman Weil

Here’s an update on a few noteworthy surveys that have been released this summer:

Law Firm Billing Rates

“For in-house counsel who want to do some comparison shopping on law firm billing rates, a new analysis from TyMetrix Legal Analytics and CEB shows… average hourly rate in 2012 for partners was $536.47, and for associates it was $370.25…. Partner rates went up 3.1 percent in 2012, compared to a 4 percent increase in 2011. Similarly, average associate rates increased 7.4 percent in 2012, versus 8.5 percent the year before.”

Read it at Corporate Counsel 

General Counsel Compensation:

“After across-the-board declines the previous year, compensation bounced back up in 2012 in every category of GC pay that [Corporate Counsel’s GC Compensation Survey] measures. Average total cash received rose 6.7 percent to $1,853,671, which is the highest figure we’ve seen … since 2000.”

Read it at Corporate Counsel

Law Firm Libraries:

The American Lawyer’s 12th annual Law Librarian Survey finds that, financial uptick not withstanding, the pressure to contain costs continues, clients are even more reluctant to pay for research than they were a year ago, and negotiations with vendors — never exactly a festive occasion — are still often contentious.  Overall, spending on outside vendors has held steady, with responding firms reporting an average 2013 library budget (including staff, print materials, electronic resources, etc.) of $6,194,015, compared to a 2012 average of $6,162,130. As in the past several surveys, increases in online spending were mitigated by cuts to print collections.”

Read it at The American Lawyer

AmLaw 100 2013

May 3rd, 2013 by Altman Weil

The American Lawyer released its review of BigLaw economic performance for 2012 and the numbers are up, if modestly:

  • Revenue: up 3.4%
  • RPL: up 2.6%
  • PPP: up 4.2%

The magazine’s take on this:

“Revenue per lawyer is up not because firms added head count—that metric only nudged up 0.8 percent—but primarily as a result of positive economic indicators. Firms were able to raise rates, and their lawyers, as a rule, were able to bill more hours (although this varied widely by practice area). Profits followed a similar path. Net income edged up 4.2 percent, and profits per partner rose even as equity partner head count stayed flat. This suggests that firms posted real profit gains, as opposed to (ahem) adjusting their partner head count.”

Read it at The American Lawyer

Capital and debt

February 28th, 2013 by Altman Weil

According to a recent survey of 171 law firms (including 122 Am Law 200 firms) from Citi Private Bank, paid-in capital per partner has been increasing over the last few years, while debt levels are decreasing.

“Between 2007 and 2011, partner paid-in capital shot up by a third, from an average of $229,000 to $303,000 per equity partner; as a percent of net earnings, paid-in capital on the balance sheet went up from 21 percent to 26 percent.”

and

“As the use of partner capital rose, borrowing dropped. Only 7.4 percent of total capitalization in 2011 was borrowed, down from 10.3 percent in 2007.”

Concerns over ongoing uncertainty and volatility in the global economy was cited by firm leaders as a driver of this trend.

Read it at The American Lawyer

2012 billing rates

December 18th, 2012 by Altman Weil

The National Law Journal has published its annual Law Firm Billing Survey which includes partner and associate billing rates for the NLJ350 list (law firms with about 120 lawyers or more).  Some survey findings:

  • Median 2012 billing rate: $432/hour
  • Median partner rate: $517/hour (up 4.5%)
  • Median associate rate: $323/hour  (up 3.5%)

However the rate asked and the rate received are often two different things.  Altman Weil consultant Ward Bower was quoted in the article:

“Driving the uptick is what consultant Ward Bower calls a “car dealership sticker price” phenomenon. Law firms are upping their asking price to gain room to haggle. The wider margin gives clients the feeling they’re getting a better deal.”

“Law firms are negotiating downward,” said Bower, of Altman Weil. “Many of them aren’t charging the quoted rates with these kinds of increases.”

Read it at National Law Journal

More bad news on law firm financial performance

November 16th, 2012 by Altman Weil

“The drumbeat of bad financial news continued for the legal industry Thursday, as yet another survey of large law firms showed demand for their services essentially flat through the first three-quarters of the year and revenue growth for 2012 likely to fall short of last year’s single-digit gains.

The Wells Fargo Private Bank Legal Specialty Group survey found that, on average, the 115 participating firms—a group that included 60 Am Law 100 firms, 40 Am Law Second Hundred firms, and 15 boutique firms—took in 3 percent more revenue during the first three quarters of the year than they did during the same nine-month period last year. Profits, meanwhile, were up just 1.5 percent. “

The survey found billable hours down slightly for equity and non-equity partners and associates, realization rates down, and expenses up compared to the same period last year. 

What are law firms to do?  The article concludes:

“One way firms may be coping with the perfect storm of slackening demand, increased expenses, and falling realization rates is by raising their fees: Billing rates were up 3.4 percent through the first nine months of the year, and two-thirds of the firms surveyed said they plan to raise billing rates between 3 and 4 percent overall next year.”

Read it at The AmLaw Daily

3rd quarter law firm performance

November 13th, 2012 by Altman Weil

The Citi Private Bank Law Firm Group is out with its latest quarterly update on the legal profession.  Their report is based on data from 182 law firms - 131 in the AmLaw 200 and 51 others. 

“Results from the first nine months of 2012 are in, and it appears increasingly likely that the legal industry will fall short of 2011’s low single-digit profit growth. Not only did third-quarter revenue and demand growth slow from the first half of the year, demand actually posted a slight decline (-0.1 percent) compared to the third quarter of 2011, which marked the beginning of the current prolonged period of soft demand. Although expense growth also slowed during the third quarter of 2012, it continued to outpace revenue growth; in fact, the gap between the two widened, putting a further squeeze on profit margins.”

Other highlights (or lowlights) included:

  • Aside from the decrease in demand, another primary reason for the drop in revenue growth in the third quarter was a slowdown in the collection cycle.
  • Through the first nine months of 2012, larger firms generally underperformed the rest of the industry, and those with the greatest global presence fared the worst.
  • Rate increases continued at about the same pace as last year, but are still running at approximately one-half the level of historical averages.
  • After a 0.3 percent increase in 2011, equity partner head count has edged up at only a slightly greater pace (0.4 percent) through the third quarter of 2012.

Read it at The AmLaw Daily

Law firm pricing directors

September 28th, 2012 by Altman Weil

More than 50 AmLaw 200 law firms have hired Pricing Directors in the last 18 months according to a new article in Corporate Counsel magazine.  This new ‘hot job’ is emerging as a way to maintain profitability in the face of increasing pricing pressures from clients.

“Given the increasingly competitive and tight economics of legal practice today, even in (especially in) the largest and most traditionally successful firms, the market has changed. Price can no longer be disconnected from cost, just as cost can’t be disconnected from value provided.

Enter the pricing director. These emerging leaders in firms are sometimes lawyers, but at this stage in the game, most of them bring experience and disciplines developed outside of the law—where pricing products and services is not only a norm, but also one of the most critical and revered aspects of business. “

What do they do?

“Pricing directors, at their core, are those within firms who help assess which categories the work falls into; which teams and workers are best suited to each matter and purpose or task; what experience, data, systems, or talent the firm brings to the matter that are distinguishing characteristics of the firm’s value; and how much each of these kinds of services provided to clients costs, profits, and advances the firm forward. These leaders are charged with transforming data and process to drive pricing that demonstrates the firm’s value to clients. Their growing role demonstrates a new path to profitability for firms suffering from a self-made downward spiral of discounted service. “

Read it at Corporate Counsel

Law firm debt

May 8th, 2012 by Altman Weil

Altman Weil principal Jim Cotterman has written a useful piece on assessing law firm debt.  He presents a sample law firm balance sheet and outlines some easy metrics firms can use as an early warning system of potential debt problems.

Read it at Altman Weil    

New billing rate study

April 17th, 2012 by Altman Weil

Software company, TyMetrix Legal Analytics, in association with Corporate Executive Board, has announced publication of the 2012 Real Rate Report.  The report analyzes law firm billing rate trends based on data from $7.6 billion in legal bills from 4,000 law firms, issued between 2007 to 2011. 

TyMetrix shared these highlights:

  • The Most Expensive Lawyers Are Getting More Expensive. Rates for the highest billing partners ($800+ per hour) grew nearly three times faster than rates for the lowest billing partners (less than $300 per hour), and rates for the highest billing associates ($500+ per hour) grew nearly five times as fast as the lowest billing associates (less than $200 per hour).
  • Clients Are Willing to Pay a Premium for Large Law Firm Work. The percentage increase for firms with more than 1,000 lawyers was double what the smallest firms experienced. The average hourly rates from 2009-2011 for law firms with 501-1,000 lawyers increased by 13 percent compared to a 4 percent rate increase at law firms with 1-50 lawyers.
  • Lawyers Charge Different Hourly Rates to Different Clients For Similar Work.  In 2011, 90 percent of lawyers charged different rates for similar types of work. Intellectual property and commercial contracts practices had the highest percentage difference in rates (23.1 percent and 18.7 percent, respectively), while regulatory and finance/securities/banking saw the lowest percentage difference in rates (about 11 percent).
  • Higher Spend Equals Higher Rates - Consolidation Not Necessarily Associated with Lower Hourly Rates. Some in-house legal departments have had success consolidating work into a single law firm, but the data reveals that rates actually tend to increase as a law firm takes on more work from a client.
  • Use of Entry-Level Lawyers Can Add Significant Costs to Legal Matter.  The data confirms that the use of entry-level lawyers (associates with less than 2 years’ experience since passing the bar exam) continues to decline.  Notably, the data also show that matters staffed with entry-level associates tend to cost as much as 20 percent more.

Read it at TyMetrix

Needless to say, this is interesting stuff and has gotten some attention:

The AmLaw Daily talked to TyMetrix:

“What it’s really showing is that there’s an increased premium being paid for experience and expertise,” says Julie Peck, vice president of strategy and market development at TyMetrix. “Some parts of the lawyer market are able to raise rates much more quickly, and are more impervious to economic forces than others.”

Read it at the AmLaw Daily

The Wall Street Journal talked to some General Counsel about the report’s findings:

“I’m really seeing pretty much everybody across the board, big and small [law firms], trying to raise their rates. The small ones are not as successful,” said Lewis Steverson, general counsel for Motorola Solutions… “We get more push-back from the big firms.”

and

“There are a large number of lawyers today who find themselves in the uncomfortable position of being, for lack of a better phrase, commodity service providers,” said Ken Grady, deputy general counsel at footwear company Wolverine World Wide Inc. “You don’t see a lot of big rate increases being asked for in those areas, and that’s not something they expect to get.”

Read it at the Wall Street Journal (subscription required)

Unfunded pension obligations in law firms

March 1st, 2012 by Altman Weil

Unfunded and underfunded pension obligations in law firms can pose serious problems for law firms, as illustrated in The American Lawyer’s cover story this month.

“The recession, with its double whammy of retirement investment portfolio declines and firm revenue slowdowns, was a broad wake-up call for firms that fund pensions out of current income, as well as for the broader swath of firms that fund benefits out of firm-run investment portfolios. Many in the latter category had to dig into earnings to cover shortfalls in guaranteed benefits funded by firm investments. But the problems created by the sagging economy brought into relief a bigger, looming issue: The ranks of retired partners is swelling just as the number of equity partners—who are ultimately responsible for funding the pension plans—is leveling off.”

Read it at The American Lawyer

Of course this is not a new problem but, as the article points out, one that has been exacerbated by the recession.   In 2002 Altman Weil principal Ward Bower wrote an article on Retiring Unfunded Obligations with advice that is still relevant in 2012.

Read it at Altman Weil