The New Zealand Law Business Booms Despite The Headwinds

The New Zealand law business continues to boom, as demonstrated by Statistics new Zealand’s recently released benchmarking data for various industries, showing the New Zealand law business produces revenues of $3.8 billion with profits estimated at $1.4 billion.

By contrast the profits for the sector in 2019 was $1.28 billion.

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A report from Capital Letter editor Geoff Adlam pulled the figures and showed the industry employs 15,600 across nearly 3800 enterprises, providing a per employee income of $243,846 and a per-employee profit of $89,679.

The figures received a stamp of confidence from Auckland Moore Markhams director Sam Bassett whose firm has published reports on the law industry through their annual Auckland legal practitioner survey.

Bassett said that top performing Auckland law firms achieved up to 50 per cent of gross fees profit to full time working owner or equity partner.

Salary costs, he said, excluding the equity partner, are 30-35 per cent of gross fees with overheads at 20-25 per cent of gross fees.

Larger firms achieve higher gross fees per equity partner but also have higher salaries and overheads, reducing their net return to 30-40 per cent of gross fees.

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The article also quoted Ben Paul, who advise on law firm marketing through The BD Ladder, and who has written on business development matters for lawyers in LawFuel, who notes that law firms had been the most profitable of the professional firms for many years, focusing on the famed or infamous ‘billable hour’ and by avoiding the face to the bottom in terms of fees, which
had hindered other professionals.

Part of the reason for lawyers’ advantage on the fees front is that their businesses have not been commoditised to the same extent that accountants have with audits and the like. Although there is higher competition in the conveyancing area, the costs of large scale transactions and litigation has kept profits high.

Sam Bassett’s views on the Auckland legal market is one that sees change coming for law firms with lower fees ahead driven by an economic slowdown,
staff shortages and a decline in deals.

He notes however that lawyers demonstrate some resilience in adapting their practices to counteract slowdowns by handling other work like litigation, insolvency and planning.

Ben Paul is similarly optimistic about the ability of lawyers to continue to build the growth and profitability of their practices.

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