Revenue
Growth has slowed slightly when comparing the numbers to prior years, but two thirds of participants continued performing well and stated that their results were as expected or exceeded their expectations.
Average revenue growth for all firms was just shy of 6%, which was roughly half the increase we saw in 2022 and back down to the levels seen in 2021.
Regional firms carried on where they left off in 2022, having greater growth compared to the City firms. The Regional firms reported growth of 8.6% compared to 4.1% for the City firms.
The number of firms reporting results that were below their expecations has almost tripled this year in comparison to 2022.
12%
Average revenue growth overall
11%
City
firms
14%
Regional firms
22%
Firms with fall in revenue
Firms with increase in revenue <10%
50%
Firms with increase in revenue >10%
28%
What do you consider to be the main drivers for attracting and retaining talent?
There was a 50/50 split this year between firms who saw an increase in their profit pool and those that saw a decrease. Despite an increase in revenues, most firms have seen expenses increase at least to pre-pandemic levels.
Profitability
23%
Average increase
24%
City firms increase
22%
Regional firms increase
Professional indemnity insurance premium
Mean profit per equity partner (PEP)
Firms with increase in PEP >10%
Firms with increase in PEP <10%
Changes in profit per equity partner (PEP)
City firms
Regional firms
The trends seen in 2022 continued in 2023 with a 6.8% increase in headcount across all firms and 74% of participating firms increasing their headcount. As anticipated there was also a 13.1% increase in personnel costs as many firms were under pressure to increase salaries.
People
4.9%
Increase in average staff cost per head
4.3%
City firms
5.8%
Regional firms
0.2%
11.2%
Increase in personnel costs
City firms
Regional firms
5.1%
15.6%
Average employment cost per head
City firms
£77,901
£77,739
2023
2022
£46,836
2023
£44,559
2022
Regional firms
Personnel costs as a percentage of fee income
40.9%
2023
38.3%
2022
City firms
47.6%
2023
44.8%
2022
Regional firms
Salary and benefits package
71%
Firm culture
and values
50%
40%
Flexible
working
38%
Career
development
Lock-up
Working capital
40
Average lock-up days at year end
Regional firms
With ongoing growth plans, stubborn inflation and some emerging signs of economic turbulence, working capital may well come under pressure in the near future. It is no surprise that 77% of participants stated that improving their lock-up is a key part of their plans for the next 12-18 months.
106
146
Revenue
Profitability
People
Working capital
Working practices
Future focus
Change in revenue by overall population
Growth
Firms are feeling confident for the year ahead with 77% of participants expecting their financial performance to increase. This translates to many having a positive outlook for their firm moving forward.
The outlook is not as positive when looking at the UK economy with 65% of firms expecting business to be challenging in the current climate. Many still see inflation as one of the key disruptors to their business so continuing pressures on profitability seem likely for the coming year.
Looking ahead
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Profitability
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There was a rise in headcount across the board this year with the number of partners, fee earners and support staff all increasing. After little change in 2022, Regional firms grew their partner numbers by 2.3% this year.
Greater numbers were added in the Regions where there was a 8.4% increase in headcount compared to 5.1% in the City.
Most firms are expecting the numbers to continue to grow with 42% of firms expecting their partner numbers to increase and 70% expecting their fee earner numbers to increase by up to 10%.
Increased salary costs also look set to continue with 83% of participants considering pay increases between 2.5 – 7.5%. This is no surprise given the cost of living crisis with many firms providing increased salaries to help their people.
With firms looking to grow, the war on talent is set to continue and this will impact on salary costs of recruiting new people into the business.
War on talent
With increased people numbers, firms are focusing on supporting their people through what are difficult times.
Firms offer a wide range of assistance to support their people’s mental health and wellbeing, with counselling helplines, coaching sessions and online mental health resources being some of the key ones.
Over 85% of participants are proud to say they offer a healthy work-life balance and encourage open conversations about mental health.
Firms have also been supporting their people through the cost of living crisis, with 68% increasing salaries and 26% providing one-off payments. Guidance is also being offered by firms on how their people can manage their money effectively.
Supporting people
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41
101
142
63
66
129
City firms
62
64
126
2023
2022
2023
2022
WIP days
Debtor days
Work In Progress (WIP) days
Debtor days
Cybercrime continues to be a threat for law firms with over 95% admitting that it was a high priortity concern. Given that 89% of participants believe there is a lack of cyber security awareness within their firm, it was surprising that most only provided annual training to their people.
Working practices
The sophistication of cyber threats are always improving so perhaps firms need to consider increasing the amount of training provided to their people and what else could be implemented to improve awareness.
Greatly exceeded our expectations
8%
34%
Slightly exceeded expectations
23%
Were as expected
How did your results compare with your expectations?
The way law firms operate has changed, with many implementing a flexible working policy that seems to be here to stay; how that develops in the future, we will have to wait and see. How firms adapt and use their office space to get value for their money is an interesting dilemma.
Looking forward
Proportion of firms who think lawyers are good at scoping and pricing work
15%
Proportion of firms who think price competition in the legal sector will increase significantly
85%
Proportion of firms who think there will be significant consolidation in the UK legal market within the next five years
55%
40%
City firms
70%
Regional firms
Proportion of firms who think attracting external investment (outside of partner capital) will be key to future law firm success
23%
15%
City firms
30%
Regional firms
Proportion of firms who think the partnership model will remain fit for purpose for the majority of firms
80%
90%
City firms
70%
Regional firms
Proportion of firms who think high inflation will continue over the mid-term (3-5 years)
50%
55%
City firms
45%
Regional firms
27%
Were slightly below expectations
Firms with fall in PEP
Firms with increase in PEP >10%
Firms with increase in PEP <10%
City firms
Regional firms
2023
£285,250
£145,673
2022
£285,850
£146,389
Fees per fee-earner (including partners)
Changes in profit pool
5.4%
City
2.3%
Regional
All partners
4.7%
City
9.6%
Regional
Professional staff (non partners)
Increase in headcount
5.6%
City
8.4%
Regional
5.1%
City
8.4%
Regional
Total headcount
2.4%
13.1%
All firms
Year
Total personnel costs
Average cost per head
Proportion of firms considering salary increases in excess of 7.5% for the coming 2022/23 year:
45%
City firms
26%
Regional firms
36%
All firms
7.5%
Ross Prince
Partner
Hear from Ross Prince on the key findings.
In conjunction with the ILFM
8%
Were significantly below expectations
Given the current economic climate, it is no surprise that firms have continued to focus on improving their lock-up. Regional firms proved successful in this regard by reducing their lock-up days by three compared to last year, whereas City firms saw theirs increase by four days.
Cybercrime
This year we asked firms to consider where they were in their sustainability journey and 45% admitted to either not yet having a structured sustainability programme or were in the process of developing one. Perhaps surprisingly 11% of participants said they did not have a structured sustainability programme and had no plans to do so.
Environmental, Social and Governance
66%
17%
All firms
69%
23%
Regional firms
City firms
64%
9%
Annually
Quarterly
17%
8%
27%
Monthly
83%
17%
All firms
77%
23%
Regional firms
City firms
91%
9%
Have you received independent assurance to identify your firm's level of cyber resilience?
Yes
No
How regularly do you provide training to all people on the latest cybercrime threats?
City firms led the way here with 38% stating they had a programme that had been in place for over two years compared to 27% in the Regions.
Firms are focused on attracting a more diverse workforce and securing the best talent with 72% of participants seeing this as their key sustainability issue.
Many firms are looking to improve their sustainability programmes by understanding their supplier climate change footprint and enhancing their external sustainability disclosures.
Less than £10 million
£10 million to £20 million
Changes in revenue by firm size
Firms with fall in revenue
41%
£20 million to £50 million
£50+ million
Firms with increase in revenue up to 10%
Firms with increase in revenue greater than 10%
Firms with fall in PEP
10%
10%
80%
24%
14%
62%
Results showed that 50% of firms increased their profit pool, and of these, 56% increased by more than 10%.
The majority of firms saw a decrease in the profit per equity partner (PEP) metrics but it was the City firms who saw the biggest decrease. This could be partly explained by City firms' partner numbers growing more than in the Regions.
In conjunction with the ILFM
Environmental, Social and Governance
Working practices
Working
capital
People
Profitability
Revenue
Looking
forward
Given that 48% of firms have a lease coming up for renewal in the next 36 months it will be interesting to see if they take on smaller office spaces and look to avoid empty desks on a regular basis as no one wants to be paying for an empty office in prime locations. Firms stated that flexibility in the length and terms of the lease will play a key role when looking at new space.
Over 52% of firms see economic inflationary risk and pricing as key disruptors to their business so it will be interesting to see how they cope with this. A lot of focus will be on improving productivity and output but many are also investing further in advanced technology solutions (such as artificial intelligence and document automation) to assist.
All firms saw their personnel costs as a percentage of income go up this year with City firms seeing a 2.6% increase and Regional firms 2.8%.
When looking at average staff costs per head there is little to no inflation in the City, perhaps suggesting the use of more junior staff and increased of AI and technology.
With the current level of inflation and salary costs continuing to rise, firms will face the challenge of trying to keep a lid on expenses and increase their profit pools.
When investigating the numbers further, over half of Regional firms exceeded their expecations, compared to a a quarter of City firms.
View Working practices analysis
Firms are continuing to review their Equality, Diversity & Inclusion (ED&I) policies with 60% of participants looking to increase new incentives and policies in the next 12 months.
Some firms are further forward when compared to others, having guidance/policies in place to cover areas such as transitioning, pregnancy loss and burnout.
Equality, Diversity and Inclusion
Agile working remains a hot topic as firms continue to find the right balance between their people working remotely and in the office. Most firms that participated in our survery currently expect their people to be in the office roughly 50% of the time and the majority believe this is generally being followed.
There were 21% of participants that felt their policy could be better adhered to and perhaps explains why some firms are offering incentives, such as a free breakfast or subsidised food, to entice their people back into the office.
While the majority of firms believe their agile working policies are adhered to, there are 42% of firms that believe productivity of those working remotely could be improved. This could be the reason why 90% of firms are focused on improving productivity and output moving forward.
With many firms in the financial services sector asking their people to return to the office at least four days a week, it will be interesting to see if law firms follow suit and what effect this would have on productivity.
Agile working
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22%
9%
8%
29%
33%
82%
62%
31%
9%
44%
29%
£513,660
2023
£647,089
2022
£314,597
2022
£283,047
2023
City firms
Regional firms
48%
52%
Firms with increase in profit pool
52%
48%
Firms with decrease in profit pool
Regional
City
Regional
City
Support staff
Smart decisions.
Lasting value.
Turnover
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