Law firm revenue growth doubled in 2022
Post-pandemic demand for legal services remained strong through 2022 and the market continues to show resilience despite the challenges facing the broader economy.
This was reflected by a vast majority (90%) of law firms reporting revenue growth across the year, with average revenue growth of 12% per firm.
This was double the revenue growth figure reported in 2021, according to new data from audit, tax, advisory and risk firm Crowe.
This strong showing was somewhat expected, though 56% said their financial performance exceeded their expectations. Most firms saw their profit pools increase too (77% of city firms and 61% of regional firms). But despite increased revenues, some firms struggled to match last year’s rise in profitability thanks to rising costs.
This was largely attributed to the return of post-pandemic travel and business development events, as well as a rise in recruitment-related costs. Both headcount and cost per staff member rose, by 4.2% and 4.9% respectively.
Profit per equity partner (PEP) increased for most, by 15% for those in the City and by a smaller margin of 5% for those in the Regions. The mean PEP for City firms was £738,728 (up from £640,759 in 2021) and £313,845 for Regional firms (up from £299,986).
Outlook for 2023 and beyond
Respondents were bearish on the UK economy, with none reporting a positive outlook. Although the outlook for the broader economy was bleak, there was greater optimism for the legal sector, specifically, where most expected at least a neutral or consistent outlook.
People issues continue to top the list of high priority risks for most firms, with the availability of people and skills, and the retention of key people scoring highest, alongside health and wellbeing, and training and development.
In terms of plans for the next 12-18 months, reducing credit risk comes out on top, but the most notable change comes in relation to firms working to improve their sustainability impact. Around half of firms listed this as a focus last year, which has increased to almost 70% (69%) this year.
Ross Prince, partner and head of the professional practices team at Crowe in the Midlands and South West, said: “As various headwinds continue to impact the economy at large, the legal sector has again performed well, as evidenced by strong financial figures across most measures. Cautious optimism looks set to continue in 2023.
“However, the full impact of inflationary pressures and salary shifts may still be felt in the coming months, and the retention of key people has been identified as a core focus for management teams.”