Is the slowdown in Biglaw that we’ve seen since the Great Recession a long-term trend or just a temporary blip? Only time will tell, but in the meantime, the debate rages on. (The latest salvo: New Republic editor Noam Scheiber’s response to critics of his controversial article, The Last Days of Big Law.)
Because of its power, prestige, and profitability, Biglaw gets a big proportion of the media coverage that’s aimed at law firms. But let’s not overlook small firms and solo practitioners, who make up about 70 percent of American lawyers in private practice.
One often hears stories about small firms, especially boutiques formed by ex-Biglaw attorneys, that are thriving. The tales are inspiring; the small-firm lawyers talk about how they enjoy their practice more, have greater autonomy, and make the same or even more money than they did back in Biglaw.
But such information is anecdotal. How are small law firms doing compared to bigger firms on a broader level? A new survey has some answers….
The revenue picture for law firms in 2012 was bright for large law firms — and bleak for smaller shops.
The Survey of Law Firm Economics, a joint project of The National Law Journal and ALM Legal Intelligence, shows that at law firms with more than 150 attorneys, revenue per lawyer (RPL) rose by 8.5 percent last year. But at law firms on the other end of the spectrum — those with one to nine attorneys — revenue plunged by 8.1 percent. The average per-lawyer gross receipts at larger firms were $499,518, compared with $302,818 at the small firms.
Revenue per lawyer ranging from $300K to $500K is pretty nice, especially given the profit margins of law practice. As a graphic later on in the article shows, 62 percent of law firm receipts wind up as lawyer income.
The dip in small-firm revenue is more distressing, but perhaps not shocking. Biglaw firms face increased competition — from legal process outsourcing to more work being done in-house, which is a form of competition — and small firms do too. Some potential clients of small firms will be lost to do-it-yourself solutions like LegalZoom, Nolo, and Rocket Lawyer. And there are various start-ups that help to connect individuals and small businesses seeking legal counsel with lawyers; by reducing the friction involved in hiring an attorney and expanding the market of sellers of legal services, these companies will probably have the side effect of lowering fees and therefore lawyer income. (One of the latest is UpCounsel, recently profiled over at TechCrunch, which focuses on connecting small businesses with counsel.)
The revenue-per-lawyer dip at small firms is bad news, but the study contains happier findings as well:
Overall, per-lawyer revenue inched up by 1.1 percent at law firms of all sizes during 2012 — welcome news compared with 2011, when it sank by 4.3 percent. At the same time, profits per lawyer were up ever so slightly — by 0.3 percent — but that still represented an improvement over 2011’s decline of 4.2 percent….
Compensation for all attorneys rose by 1.5 percent in 2012 to an average of $296,010. Senior partners made $351,290 while midlevel partners pulled in $194,036. Midlevel associates’ compensation was $133,193, on average.
Times might be tough for recent law school graduates, but for lawyers who have been in the profession a while, things are still quite good. These are robust incomes, compared to what ordinary Americans earn. For many established attorneys, their J.D. truly has been a million-dollar degree.
It appears that some of the increase in profit and compensation has been driven by rising billing rates — a sign of recovery, since rate increases were tough to push through during the dark days of the recession. According to the study, the average average hourly billing rate in 2012 for partners was $369, up four percent, and the average hourly rate for associates was $242, up four percent as well.
As for billable hours, they sound quite reasonable, even for the hardest workers in the survey:
Billing the most hours were associates and staff lawyers in the East South Central region. The median number of hours billed there was 1,850. Lawyers billing the lowest number of hours were in New England, where partners billed 1,473 hours.
It’s surprising that associates in the East South Central region, which includes Alabama, Mississippi, and Tennessee, topped the billables chart. Don’t you dare call southern lawyers lazy.
Finally, it seems that alternative fee arrangements are making headway. According to the study, 95 percent of firms use alternative billing arrangements at least some of the time, and more than a fifth of firms use them 11 to 25 percent of the time.
All in all, the survey paints a picture of a profession that’s changing, albeit slowly. And given the likely direction of the overall change, slow is probably a good thing.
Revenues Up at Larger Law Firms [National Law Journal via Morning Docket]
Yes, Big Law Really is Dying [New Republic]
UpCounsel Is A Marketplace To Connect Small Businesses With Affordable Legal Help [TechCrunch]