New Zealand law firms which participated in a benchmarking survey expect an average of 5% growth in the next financial year, to build on gross profit margins which average almost 75%.
There were 38 respondents in the annual ALPMA/Crowe Horwath Financial Performance benchmarking survey, which was the third to be carried out.
Just over half - 53% - of participating firms expect revenue growth in the coming financial year. This is well down on the 74% of firms in 2016. The 2017 survey showed that 17% of participants expect revenue to decline.
“It’s pleasing to see the sector is still anticipating growth in revenue going forward, however it’s a concern that their optimism isn’t what it was in 2016”, Crowe Horwath Business Advisory Partner, Michelle Malcolm says.
“This could be because of the change in Government creating uncertainty, as 36% of respondents have cited ‘general economy and regulatory change’ as a risk and threat in the coming year”, she says.
Of the participating firms, 47% were located outside the CBD, 37% in the CBD and 16% were regional. North Island firms made up 57% of participants. The largest component practice area was property law, with 50% of responding firms practising most in that field, followed by business and commercial law (10%), and 23% of firms not identifying any one particular practice area as being dominant.
The average participating firm had 5 partners, of whom 3.8 were equity sharing, 11.7 FTE fee earning staff members and 10.2 FTE non-fee earning staff members.
The average revenue generated per fee earner was $344,057. This was down 6.5% from the 2016 survey. The average revenue generated per partner/director was $786,997 - down 2% on 2016. The ten best performers in the survey averaged $1,230,938 per partner, while the bottom ten averaged $444,222 per partner.
The average EBIT per equity partner was $356,488.
Risks, threats and focus
Most of the firms surveyed consider the biggest threat to their success to be external factors outside of their control, with 36% pointing to general economy and regulatory change, 28% to staff shortage, and 14% to inefficiencies. The most important key focus area was team efficiency and culture (37%), followed by growing and diversifying revenue (18%) and staff retention or expansion (18%).