Revenue stays flat while expenses grow for US law firms
A new report from Citigroup shows that growth in demand is being outstripped by expenses in the US legal services sector. Revenue grew by 2.7 per cent in the first half of 2012, but the growth was driven more by enhanced collection efforts than by an increase in demand for legal services.
According to the report: “Across the industry, demand grew just 0.3 percent during the first half, a considerable slowdown from the 1.5 percent growth we reported for the first quarter.” Meanwhile, expenses are increasing at a greater rate, jumping 4.1 per cent on the figures recorded for the same period last year.
Citigroup is uniquely placed to report on the legal services industry, servicing 600 U.S. and U.K. law firms and more than 35,000 individual lawyers. This report is based on a sample of 176 firms (79 Am Law 100 firms, 47 Second Hundred firms, and 50 additional firms).
According to Dan DiPietro and Gretta Rusanow of Citi Private Bank’s Law Firm Group: “With weak demand growth and the continuation of expense growth, it is likely that expenses will continue to grow at a faster pace than revenue, squeezing margins and making it tricky to achieve even low single-digit profit growth.”
AboveTheLaw points out that, in light of these figures, the decision made by most major law firms not to hand out spring bonuses this year is looking like a good call, and may be the decision that allows firms to avoid major layoffs in tough times.
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