North West law firms improve profits
THE North West’s legal services market remains in a position of relative health, with 60% of law firms reporting an increase in profits in 2011, according to a new survey.
The study by PwC showed that the region’s law firms bucked a national trend, where most firms outside the top 10 reported a fall in profits.
The average profit per equity partner in the North West increased to £246,000, but the average profit margin dropped to 13% (2010: 16%). Moreover, the firms most likely to report falling profits have been the high street operators most likely to be impacted by the introduction of Alternative Business Structures (ABS).
The working capital performance of most law firms has held up well, with practices reporting improvements both in the number of debtor days and the length of work in progress.
David Thurkettle, leader of PwC’s professional partnerships advisory group in the North, said: “Surprisingly this year, despite market conditions, headcount has started to drift up again. Utilisation rates for professional staff have been flat or even in slight decline.
“Equally surprising, given the focus on support costs, has been the renewed upward trend in the numbers of back office staff for many firms.”
He added that larger firms have started to look at more efficient ways of operating their own business, looking towards legal process outsourcing, offshoring and even “North shoring” – ie. maintaining work in the UK, but carrying more of it out in the North where office space and salaries are cheaper.
Thurkettle said: “Pricing pressures are here to stay so firms are now looking at different pricing models but most are still highly reliant on the hourly system. This is an area where firms have a chance to differentiate themselves among their key clients and we would expect to see more of this trend in an increasingly competitive market.”
