The results of the Law Society’s Leadership and Management Section (LMS) benchmarking survey have been released. For over twenty years, the survey has been providing detailed accounting and other financial data from law firms and, for the past fifteen years or so, it has been prepared by Hazlewoods: specialist accountants working with law firms in the legal sector.
This report covers the critical operational and financial aspects of running a law firm and analyses performance in areas such as fee income growth, operational costs, profitability, returns on capital and working capital management.
Participants range in size from the very large to the very small and the presented data splits those participants into different categories based on turnover to ensure that the results are relevant to as wide a range of users as possible.
This year’s report shows an increase in fee income at a median level, but the rate of increase has been slowing over the past couple of years. The median increase in practice fee income was 6% in the year but, given inflation was at a very high level between 2022 and 2024, recent increases have merely been trying to keep up.
Readers of the report will see that one of the biggest challenges facing firms was keeping staff working productively. While there was a small increase in the median number of chargeable hours across fee earners, it only moved from 765 in 2023 to 773 in this year’s survey. When one considers that most firms target a minimum of between 1,000 and 1,200 chargeable hours per year, there is a clear gap between reality and expectation.
The results showed a year-on-year increase in profit per equity partner (PEP) of around 20%. However, removing client money interest income shows that underlying trading growth was more or less flat.
The total of client interest received across the participants was £70m compared to £28m in the prior year, an increase of around 150%. A large portion of some firms’ PEP consisted of interest income, highlighting problems around how it can be easy for firms to not tackle difficult issues around staff productivity and capacity when interest is flattering the results.
Despite the challenges, confidence remains positive and firms are predicting growth in fee income in the current financial year, though the level of optimism is cautious.
The report also looks at other measures of financial performance, including return on partner capital, lockup management and overall financial stability.
The financial benchmarking survey is available for free download and no registration is required.
*the views expressed are the author's and not ICAEW's
