Are northern law firms the most efficient?

December 06, 2019

There seems to be something of a North-South divide in the UK legal services market, with the 2015 Financial Benchmarking Report – Law Firms suggesting that law firms in the north of England are the country’s most efficient.

Produced by NatWest and RBS in collaboration with consultant Robert Mowbray (“a chartered accountant who has worked for professional firms for more than 30 years”), the report assessed 339 “law firms operating in the SME space across the UK with revenues below £35 million”.

The aim was to “to find out the financial obstacles the legal sector faces in 2015, and the solutions to tackle them”. According to the report: “Operational efficiency still appears to be a challenge.”

Positive Outlook

Overall, the outlook seems positive, with 81 per cent of respondents believing their ‘fees per fee earner’ income will increase this year and 68 per cent expecting their chargeable hours to increase.

However, as Lisa Ford, head of professionals team north at NatWest/RBS, explained: “Legislative changes associated with litigation work has applied a downward pressure on profits, and as a percentage of fees, [average] profits were 20 per cent in 2014, a reduction of four per cent on 2013.”

According to the report, “median profit per equity partner (PEP) in 2014 [was] £107,000;  £20,000 higher than [in 2013]. At £71,000, the median PEP figure in small firms is less than half of the median figure in large firms [£148,000].

The report argues that profit growth is the result of “recruiting new fee earners rather than a rise in productivity”.

Grin up North

As proudly reported by The Yorkshire Evening Post, Blackpool Gazette and others, Ford said: “It’s great to see that legal firms in the north continue to outperform many other regions in respect of fees per fee earner [average £155,000].”

She said law firms in the north “posted a seven per cent improvement in revenue levels in 2014, supporting a median profit improvement of 11 per cent. But this impressive performance did not evidence itself through profit per equity partner, which at a median level only increased by £5,000 to £112,000.”

Key recommendations

Although the report doesn’t explain why northern law firms might be more efficient, it gives several recommendations for boosting profits. “Now is the time to focus more on the growth of fee income,” it argues, which “may require a change in thinking because generating more income may require a firm to spend more on fee earners and supporting overheads.”

The report says legal firms can achieve a “healthier bottom line” by boosting fee earner productivity. This requires: “more effective capture of time worked; getting smarter and more confident with fee arrangements; and improving a firm’s ability to ensure that clients never get nasty surprises over fees. Achieving this may well require significant investment in training and systems,” it recommends.

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