Law firm revenue rose 5.6 percent in the first six months of 2017, according to a survey released Monday by Wells Fargo Private Bank’s Legal Specialty Group.
“I thought that the mid-year report would have been a little softer than what the numbers support,” said Joe Mendola, senior director of sales at Wells Fargo Private Bank, who added he is “optimistic” that the year will finish strongly.
He attributed the higher revenue to increases in billing rates and demand, as detailed below. The only segment that saw a drop in demand was the AmLaw 200 firms. Mendola said this is not a new trend.
About 135 law firms, 60 of which hail from the AmLaw 100 and the balance of which are either AmLaw 200 or regional firms, logged in to the bank’s online platform and participated in the survey, according to Mendola.
All results were self-reported by the law firms, and the results were compared the first six months of 2016.
We’ve broken down the results, below, and interviewed Mendola for clarity on what the results mean.
The good news:
- Overall, law firms reported a 5.6 percent increase in revenue.
- Demand for services was up 1.4 percent.
- Attorney headcount was up 1.7 percent.
The not-so-good news:
- The 100 most elite firms, as ranked by gross revenue, outpaced the less elite firms in nearly every category.
- Revenue was up 7 percent for AmLaw 50 firms, and 6.6 percent for AmLaw 100 firms, but only up 3.3 percent for AmLaw 200 firms.
- Demand also grew most for AmLaw 50 firms, at 3.2 percent, while only growing 2.2 percent for AmLaw 100 firms, and actually declining 1.3 percent for the AmLaw 200 firms.
- Expenses were up 5.5 percent overall, which Mendola attributed to headcount increase and associate salary increases.
- Utilization, or the average number of hours billed per timekeeper, stagnated at 1613 hours, down slightly from 1618 hours last year during the same period, he said.
Big Law Business: What’s driving the revenue increase?
Mendola: This is not terribly different than in years gone by, it’s the [billing] rate increases, which were pretty much across the board in excess of 4 percent. But the positive news is that activity levels, or demand, was up overall. The only segment that saw a drop in demand was the AmLaw 200 firms, where they saw a demand drop of 1.5 percent.
Big Law Business: Did realization rates decrease, as billing rates increased?
Mendola: No, actually. In looking at the numbers, that was one of the most pleasant and surprising things. Typically, you raise rates and there’s some push back on realization But the realization rates held firm, so that’s a very positive sign for the industry.
Big Law Business: Were there any noteworthy macroeconomic trends?
Mendola: When I look at the regional firms, what we call the mid-Atlantic region [i.e. Washington, D.C., and the surrounding area], their revenue was up 9.3 percent — if we wanted to speculate that could be administrative or regulatory [related to the change in Presidential administration]. That’s higher than New York, which was 5.8 percent. We break out California into northern, which was 6.2 percent, and Southern, which was was 6.9 percent. I don’t think there’s anything extraordinary going on with the exception of the D.C. area.