September 14, 2011 6:39 PM

Report: First Half of Year Saw Law Firm Revenue, Partner Profits Rise

Posted by Dana Olsen

Revenue, net income, and profits per partner rose marginally, year over year, during the first half of 2011 at "between 120 and 125 firms" of the country's largest law firms, according to a new survey by Wells Fargo Wealth Management's Legal Specialty Group.

While Wells Fargo did not release the full survey, Jeffrey Grossman, managing director of the legal specialty group shared some of its results with The Am Law Daily.

Among the findings shared by Grossman: Collectively, revenue at the surveyed firms increased 4.5 percent, while net income climbed 2.5 percent. Firms with profits per partner of at least $1.8 million fared even better, enjoying a 7.6 percent year-over-year increase in revenue during the first six months of 2011. Overall, profits per partner rose 3 percent, the survey found.

 Grossman attributes the first-half revenue growth in part to a simple fact: more work. Average billable hours per attorney among the surveyed firms is on pace to reach 1,664 hours by the end of 2011, up slightly from 1,643 in 2010, he says.

"They're still not where they need to be," he says. "It would be great to be at 1,800 hours, but I think if they can get above 1,700, it's an indication supply has been reduced relative to demand. Supply still outstrips demand."

Litigation work is also rising, he says.

Law firms are also benefiting from a rise in billable rates for first-year associates, Grossman notes. Those rates climbed 3.5 percent on average during the first half of 2011 compared to the first half of 2010. Aiding the profit picture, he adds, is an increase in law firms' average lawyer-to-secretary ratio, which now stands at 3 to 1.

Grossman cited several factors as tempering the growth in income versus revenue in the first half of the year. The main ones: a 6 percent rise in salary costs and a 4 percent rise in overall expenses (a figure that includes everything from rent to marketing).

While the numbers improved overall, there was a wide divergence from the mean, with firms at the top end reporting a 30 percent rise in revenue and those at the bottom notching a 15 percent dip.

"What that suggests to me," Grossman says, "is that while the industry is doing well, there's more separation from the pack and more volatility than we've seen in the past."

Grossman says he expects growth to slow in the second half of the year. "The year as a whole will be better than 2010, but I don't think it will be as positive as the first half of the year."

One ominous note: The survey also found that between 5 and 10 percent of firms plan to reduce their ranks in categories including equity partners, staff attorneys, and staff at some point in the future.

Sara Randazzo contributed reporting.

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