Has the BigLaw recovery arrived? Revenue per lawyer is at a low point, when adjusted for inflation
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At first glance, financial statistics on the nation’s largest law firms show record-breaking gross revenue, profits and revenue per lawyer.
But the raw numbers can be deceiving, the American Lawyer (sub. req.) reports. Revenue per lawyer at the 200 largest law firms last year was $776,000, which appears to be a record amount. But when that number is adjusted for inflation, revenue per lawyer is just $438,000, the lowest point since the American Lawyer began keeping statistics in 1998.
Revenue per equity partner didn’t suffer so much. When adjusted for inflation, the number was the seventh highest since 1998. Firms had fewer equity partners, however, and the compensation gap between partners is widening.
The article notes that the Am Law 200 managed to snag a great share of legal spending by American businesses during the downturn. The American Lawyer estimates that, by 2010, law firms had increased their share of the U.S. legal market to 47 percent of all spending on law firms, and since then they have managed to hold on to that “wildly disproportionate” share.
“But the firms seem to have hit a plateau,” the article says. “After being stalled for three years, [they] may have reached their natural upper limit.”
Other points in the article:
–Twenty-one law firms appear to have broken away from the pack in terms of revenues per lawyer and profits per equity partner. At these firms, profits per equity partner are at $3 million, or $2.1 million in inflation-adjusted dollars. At the other top firms, the average was $1.02 million per equity partner, or about $719,000 in inflation-adjusted dollars. That gap makes a difference in the lateral market; the top 21 firms can afford to poach from the other firms.
–The article expresses optimism about the future of BigLaw, with a caveat. It “seems clear that not every firm is going to make it through the next several years,” the article says. Up to this point, firms that imploded have largely been guilty of “astonishingly bad or deluded leadership” that is “coupled with a run of bad luck.” In a tight legal market, those kinds of problems can bring down a law firm, the story says. “The good times were forgiving,” the story says. “Today’s times are much less so.”
