Law firms increased revenues this year, posting gains during the first three quarters that are the best in about a decade, according to two new reports.
The numbers differed slightly, but the conclusion was the same: 2018 is shaping up to be a good year, thanks to higher billing rates and higher demand for legal services.
Wells Fargo Private Bank’s Legal Specialty Group found revenue growth of 7 percent among its surveyed law firms, while Citi Private Bank’s Law Firm Group reported revenue growth of 6.3 percent.
Wells Fargo said demand increased by 3.3 percent, while Citi Private Bank found demand growth of 2.5 percent. Billing rates grew even more, increasing by 4.3 percent, according to Citi Private Bank.
The New York Law Journal covered the Wells Fargo report, while Citi Private Bank released its findings in a press release and client advisory. Citi Private Bank’s report was conducted with Hildebrandt Consulting.
The nation’s top 50 law firms outperformed other law firms, according to both reports. According to Wells Fargo, revenue increased 8.2 percent at the 50 top firms. Revenue growth was 5.7 percent at law firms ranked 51 to 100 and 2.3 percent for firms ranked 101 to 200. Demand growth also was highest for the top 50 firms, both reports found.
Niche firms outside the top 200 firms also performed well, with demand growing an average of 2.5 percent, according to Citi Private Bank. The results suggest that firms “with strong reputations and differentiated brands are being favored in the market, regardless of their size,” according to Citi’s press release.
Citi Private Bank noted a few negatives. The collection cycle has slightly lengthened, and law firm costs in the first three quarters increased by 5.9 percent. The rising costs were largely driven by increasing lawyer head counts outside the equity partner ranks, along with midyear salary increases for associates. Other “expense pressure points” are technology upgrades, cybersecurity measures, professional staff and new real estate investments.
The Citi Private Bank report also notes an “acceleration in the pace of equity partner retirements” in coming years, which could lead to a shortfall in permanent paid-in capital.