The Small Law Firm Survey: Small Firms Can Still Earn Big Money – Plus The 3 Big Profit Drivers
The Moore Markhams survey of small law firms in the Auckland region has shown strong profitability among smaller law firms, albeit with a slight decrease over the past year.
However, the survey does indicate that small firms are generating substantial incomes for partners, depending upon some key factors identified in the survey.
The Legal Practitioners Performance Survey for 2019, which may be purchased from Moore Markhams, showed that top firms of the 21 firms surveyed in the Auckland region taking home almost half the gross fees billed.
The survey observed that firms were generally more successful in the recovery of fees and with equity partners being more successful at recovering more fees at higher rates.
The survey showed the average gross fees per equity partner to be in excess of $1 million with the five most profitable firms seeing a net income of over $900,00, slightly down on the figures recorded in 2017 but remaining highly respectable.
And Moore Markhams note that there is clear evidence of better management with higher earnings for equity partners as a percentage of income, which demonstrates their management and better control of salaries.
However countering that has been the highest increase in overheads over the past seven years’ survey recordings.
3 Key Profit Drivers
The survey showed that over 40 per cent of the firms had equity partners earning over $500,000. Net incomes in the top three firms surveyed was over $800,000.
But the three key drivers for profits that are identified in the survey include –
- The use of non-equity partners to help drive profitability for the firm. Eight of the top 10 firms in the survey used NEPs and the NEP salaries are rising, commensurate with their economic contribution to their firms.
- Empowered practice managers who permit the partners to do what they do best. The top 10 firms in terms of profitability employed managers.
- Good location, with central city firms being the most profitable but with the suburban and other firms still benefiting from lower overheads. Eight of the top 10 firms in profitability were in the central city.
The Gender Split
The survey included 99 equity partners across the firms, with 75 per cent being male. But the survey noted the increasing trend towards greater female participation.
The survey noted that most of the firms adopted the lockstep compensation model, permitting NEPs to graduate towards equity partnership and to also permit the firms to better handle their succession planning requirements.
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