We act for over 100 law firms throughout the UK each year. For all our compliance clients we supply a bespoke individual benchmarking report analysing the results of their individual firm as part of our standard added value service when discussing their annual accounts.
Each year we summarise the results of these practices in our annual benchmarking review. This review covers firms of all sizes, throughout the UK. Where possible the results are analysed by practice size. The practice size is determined in terms of the number of full equity partners within firms, excluding fixed share equity partners and salaries partners. We classify firms with 1-7 full equity partners, as being small and those with 8+ full equity partners as large, in reality, law firms with 8+ full equity are very much at the larger end of the legal market given the demographics of the sector.
However given that some of the above statistics are based on a substantial part of performance during the 2020/21 pandemic and some results are masked by government support given, we thought it beneficial to complete a mid-year benchmarking review to see how firms are performing post-covid.
Fee income per equity partner has increased by 10% from 2020/21. This increase is driven by law firms with 1-7 partners which show an increase 10.7% The average fee income per equity partner is £842,000. The increase in fee income is particularly notable for firms with residential conveyancing income. The number of equity partners has remained stable so the increase is solely from increased fees.
However in contrast to this, fee income per fee earner has fallen by 5.3%. With average fee income per fee earner being £133,000, a reduction of £8,000 from 2020/21. This fall is in contrast to the rise in fee income by equity partner.
Net profit per equity partner is currently averaging £199,000 for 2021/22, which is £14,000 up on last year. With both small and large firms averaging a 7% increase.
Net profit % (NP%) measure is one of the most important for law firms and it demonstrates whether work that is being completed in profitable. Net Profit % has increased from 29% in 2020/21 to 36.9% in 2021/22 so far, an overall increase of 7.9%. However all this increase is from small firms (1-7 partners) as the Net profit % for larger firms remains unchanged from 2020/21.
On average for 2021/22 there are 5.9 fee earners for every equity partner across all firm sizes. Firms with 1-7 partners show an increase in the ratio from 5.2 to 6.1 and larger firms (8+ partners) a rise from 4.0 to 4.7. This shows that firms with a small number of partners now have more fee earners compared to equity partners. This demonstrates the changing legal sector market, whereby there are a number of our clients falling into this category as they have limited the number of partners.
Staff costs as a percentage of fee income has decreased from 40.3% to 39.1% across a firm sizes. With similar falls across both larger and smaller practices. This is attributable to fees per fee earner rising by more than the increase in salaries. We expect that relationship to switch from now on given more recent increases in salary costs.
Rent and rates as a % of fee income has decreased from 4.4% in 2020/21 to 3.8% for 2021/22. This is likely due to the impact of decisions made post pandemic for firms to actively reduce office space as a result of a move towards increase hybrid and home workings.
PI insurance has seen an increase year on year from 3.9% of fee income in 2020/21 to 4.2% in 2021/22. This increase was expected given the hardening of the market and fee income increasing.
Marketing spend as a % of fee income has decreased from 1.9% in 2020/21 to 1.7% in 2021/22 so far. Even though marketing events were restricted in previous years, this shows that level of expenditure has not risen to previous levels with firms reviewing their marketing strategies and online events continuing.
In summary the benchmarking results for 2022 to date are very encouraging and firms are showing strong performance, with both fee income and profitability continuing which indicates that firms are continuing to grow post pandemic. It will be interesting to see the impact of wider economic pressures on law firms as we move forward from here.
If you are interested in seeing how your firm compares with the benchmarks in this report or want to further investigate variances with your own firm's performance then please contact us.
Victoria Lovell, Legal Sector Assistant Manager