West Midlands law firms are showing widely varying results according to the annual Law Firm Benchmaking report produced by audit, tax and advisory firm Crowe Clark Whitehill.
The report shows that despite increasing market competition, regional law firms have once again experienced faster growth than City law firms.
But, according to Ross Prince, Professional Practices Partner at Crowe’s Midlands office, the headline growth of 6% in this year’s regional firm participants masks a widening gap between firms achieving double-digit growth and an increasing number reporting a drop in revenue.
Crowe’s annual Law Firm Benchmarking shows that one third of regional firms have experienced growth of over 10% in the past year, compared to just over a quarter of City firms. In addition, regional firms saw a greater rise in Profit per Equity Partner (PEP), with over 70% of those who grew PEP reporting an increase of over 10% as compared with just under 40% for City firms.
However, there are mixed performances within both groups as 21% of respondents report a drop in revenue, more than in recent years. This may be indicative of the uncertainty present in advance of the Brexit vote, which took place shortly after firms’ year ends.
Ross Prince comments:
“Aggregate growth of 6% in this year’s regional firm participants might appear steady. However, this headline masks a widening gap between firms achieving double-digit growth and an increasing proportion who are reporting a fall in revenue.”
“The results paint a picture of an increasingly competitive marketplace, with firms that are willing to adapt having an advantage on firms who are not addressing the need to change.
“This year, firms have generally needed additional capacity, as average fee-earner numbers have increased by around 5%, although attracting new talent has not created significant inflationary pressures on pay. The average increase in staff costs was 2%, which is perhaps lower than we might have expected.”
Looking forward, City and regional firms indicate very different investment priorities, and challenges, for the next 12 to 24 months.
Regional firms see technology as the focus for investment (43%), while pricing pressure seems to be leading City firms to focus on marketing (22%) for the year ahead.
For regional firms, there was a different but no less challenging variation on the age-old ‘war for talent’, with 48% identifying the availability of high quality personnel as their main challenge for the coming year. For City firms, it was once again the increasingly competitive market place, with 32% identifying price competition as their biggest challenge.
When asked about potential sources of future additional finance, both City and regional firms identified a mix of partner capital and debt finance as the most likely combination. However, City firms indicated a greater willingness to request contributions from partners, with 64% stating their preferred source of finance to be capital supplied by current partners, and 68% for capital contributions from new partners.