Comparing law firm costs: Law Firm Management Committee survey, February 2021
Stephen Revell
Freshfields Bruckhaus Deringer, Singapore
stephen.revell@freshfields.com
Key takeaways
- Despite the uncertainties throughout 2020, almost 60 per cent of law firms maintained the same costs.
- Lawyer salaries were as much as 50 per cent of total spend for some firms, followed by rent and property costs, business support salaries, IT, marketing and insurance.
- Interestingly, 85 per cent of the respondent firms are making payments to founders no longer in the firm, in some cases as high as 20 per cent of total costs.
- The spending priorities for 2021 are (in order of importance): increasing lawyer salaries, IT and marketing, increasing business support salaries as well as learning and development and staff engagement.
- Finally, in a year in which travel has been restricted, it is no surprise that 91 per cent of respondents reported that their travel expenditure was below five per cent.
The survey in numbers
- In what has been widely seen as a better financial year than originally predicted, 42 per cent of respondents reported falling costs in 2020 while for 58 per cent there was no change.
- Lawyer salaries (including fixed share income for partners but not 'profit' distribution) is by far the largest cost – for 57 per cent of respondents from 21 per cent to 50 per cent of total spend. For 23 per cent it was higher at over 50 per cent of costs and for 19 per cent it was lower at 11–20 per cent of costs.
- For 36 per cent of the firms, six to ten per cent of costs were business support salaries and for 32 per cent of the firms they were higher at between 11–20 per cent of costs.
- Forty-nine per cent of firms said their rent and property costs were between six to ten per cent of total costs, for 23 per cent they were higher at 11–20 per cent of total costs and for nine per cent of respondents they were as much as 21 per cent of total costs.
- For 53 per cent of respondents, IT costs (not capital spend but licenses etc, IT supplies and computer maintenance) were below five per cent of total costs but 40 per cent of respondents spend between six to ten per cent with six per cent spending 11–20 per cent.
- In a year which has seen insurance premiums rising in some jurisdictions, 79 per cent are spending below five per cent on insurance and 21 per cent up to ten per cent.
- Sixty per cent of respondents spent up to five per cent on marketing and 34 per cent spent up to ten per cent.
- Seventy-four per cent spent up to five per cent on staff benefits (training, education and wellness) and 26 per cent up to ten per cent of total expenditure.
- Eighty-five per cent of firms reported that they are making payments (including pensions) to founders no longer in the firm of up to five per cent of annual costs. For six per cent this is six to ten per cent of costs and for nine per cent as high as 20 per cent of costs.
- In what has been an unusual year, 91 per cent reported travel expenditure below five per cent.
- Eighty-nine per cent budgeted one to five per cent on depreciation/amortisation and 11 per cent up to ten per cent.
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Finally, respondents listed their key item of increased expenditure in 2021:
- forty-nine per cent – lawyer salaries;
- thirty-two per cent – IT and infrastructure;
- thirty-two per cent – marketing;
- eight per cent – increasing business support salaries; and
- eight per cent – staff engagement including learning and development.
- Forty-one per cent do plan further cost reductions in 2021 while 59 per cent do not.
Report provided by:
Moray McLaren, Lexington Consultants
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