A profitable exercise

This year 233 firms participated in the Law Society’s Survey of Law Firms in Scotland, representing 20% of all firms in the country. This is a good response rate compared to similar surveys.

One of the interesting statistics in the survey is the large number of firms that take part on a regular basis. Around 75% of the firms that participated in 2004 had also taken part the previous year, with about 60% having contributed in each of the last three years.

The profitability of the firms in the survey has increased steadily in recent years, and it is interesting to speculate whether this might in part be due to their participation in the survey? Certainly, some well run firms enter the appropriate benchmarks into their management reports and monitor their monthly or quarterly accounts against the key figures as the following year progresses.

Chart 1 and table 1 illustrate the median profit per profit-sharing partner over the last six years and show a steady increase.

The chart gives a general indication that profits were fairly static from 1999 to 2001 but have risen progressively since this time. The volatility in the 10+ category is a function of the small sample involved and changing participants year on year.

The court work conundrum

As always, the variation in profitability year on year, and between firms each year will depend on a number of factors. Some of these are within the control of individual firms, such as their structure, levels of fee-earner undertaking different types of work, and their cost base. Others are outside their control, such as the rates courts will pay or the rates of pay offered by SLAB. This year, for the first time, we analysed the impact of court work and legal aid on profitability.

Charts 2 and 3 compare the most and least profitable firms in the survey, and indicate that amongst most size groups the most profitable firms undertook less court work. Legal aid also represented a smaller proportion of their fees.

Interestingly, the most profitable 5-9 partner firms did a significant amount of court work – 60%, and half of their fees were legally aided. They are likely to be undertaking legal aid in volume and are likely to have the systems and people to undertake the work profitably.

Rate for the job

Each year the survey also gathers data on salaries; indeed it must be one of the largest salary surveys for firms in Scotland. Details are provided for:

• Salaried partners
• Associates
• Qualified assistants
• Unqualified fee-earners
• Trainees

The charts and tables pick out two of these groups and illustrate the changes over the last six years.

In considering these salary figures, it has to be appreciated that the firms making up the sample for each year, are not the same. Furthermore the figures are an average across the range from newly qualified to those with substantial experience. Although these factors place a “health warning” on any conclusions one might wish to draw from the trends evident above, the figures are likely to be of interest to employed lawyers and firms alike!

All participating firms receive a free copy of “The 2004 Survey of Law Firms in Scotland”, the detailed report upon which this article is based. They also receive a free confidential individual report. Other firms can obtain a copy of the full report which contains a wide range of useful statistics and performance indicators, from Lisa Hamilton at the Society on 0131 476 8164 (e: lisahamilton@lawscot.org.uk).

In April the President will be writing to all firms inviting them to participate in the 2005 survey. Participation is free and this year carries a three hour CPD credit as well as an individual report on cost rates in the firm and a copy of the survey report. In recent years there has also been a prize draw. This year, the prize of a theatre break in London was won by David Devlin, of Connor Malcolm. The Society is again grateful to Alex Quinn and Partners for sponsoring the prize in 2004.

Andrew Otterburn is a management consultant and for many years has run practice management seminars on behalf of the Society. He has helped in the development of the Cost of Time Survey since 1999, working initially with Professor John McCutcheon and now with Dr John Pollock. His book, Profitability and Law Firm Management, is published by the Law Society in London.

Dr John Pollock, a consulting actuary, has been responsible for the administration and statistical aspects of the Cost of Time Survey since 2002.  John is well known to personal injury, employment and family law solicitors in Scotland through his expert witness work at Pollock & Galbraith Consulting Actuaries.

Please see PDF files for graphs and tables.