Firms must invest in technology to boost profits, reports Redbrick Solutions
The NatWest annual legal benchmarking report has found that profit per equity partner (PEP) is down by 10%, although other performance indicators are up. This years’ report, the sixth of its kind, focused on firms’ financials and found productivity to be the main issue.
However, although PEP was down – from £120,000 last year to £108,000 – median fees per equity partner were up by an inflation-busting 5.4% to £539,000 last year.
The report, written by accountant Robert Mowbray of legal consultants Taylor Mowbray, covered the performance of 190 law firms with 1,224 equity partners and employing 11,100 people. Combined fee income was just over £1bn.
Mr Mowbray says “Productivity is definitely the issue and to avoid time being written off there needs to be a change in culture and behaviours around matter planning, the way that work is done and the way that firms engage with their clients so that clients get what they want and are willing to pay for the services delivered.”
“Investing in technology and smarter processes is key if lawyers are to be free to focus on the higher value that they can bring to a client matter.” Mr Mowbray added.
So, amid intense competition and an uncertain future how can firms ensure their success in 2018?
Martin MacDuff, Managing Director of Redbrick Solutions, agrees that using technology to drive operational efficiency and deliver a better client experience is essential to retaining and increasing profit margins.
He comments “We meet law firms of all shapes and sizes and find that there is a real divide. Many are using significantly out of date technology that is having a negative impact on their profitability yet they place very little importance on their IT systems.”
“On the other hand, we have clients who have increased their instruction levels by 110% over the last couple of years and have only increased their headcount by a fraction of that because they have streamlined their processes, automated as much as possible and are making business decisions based on financial and industry insights they were unable to access previously.”
Dave Weaver, Natwest’s new head of professional services, said: “Although fee increases are promising, it is too easy for firms to focus on fees earned as opposed to PEP… improving efficiency should be front and centre of our thoughts.
“A focus on productivity and exploring different ways of working represents a real opportunity for the sector, which has tended to lag behind others in terms of investment in technology and embracing AI.”
Martin concludes, “Having powerful business information easily available has made a world of difference to the way firms are viewing their business. They can now easily understand costs, profit and productivity across either the whole business or targeted areas and are using that information to drive steady growth and secure their future success.”
Making good use of technology is going to be key in 2018, so if you haven't yet seen Redbrick Solutions now is the time to act.