Despite slowdown, NZ law firms expect revenue growth

Revenue per lawyer is down year-on-year – but Kiwi firms are still upbeat

Despite slowdown, NZ law firms expect revenue growth
New Zealand’s legal sector is upbeat about revenue growth in the next financial year, a benchmarking survey of the country’s law firms has found.

Firms surveyed in the 2017 New Zealand Law Firm Survey by Crowe Horwath and the Australian Legal Practice Management Association (ALPMA) expected their firm revenues to grow about 5.5% in fiscal 2017.

Of the 38 law firms that participated, 53% expect revenue growth, while 30% expect no change and 17% expect a decline. This is a gloomier outlook than last year, when 74% of respondents expected growth, 20% expected no change, and 6% expected a decline.

The overall net positive outlook also came as revenue per lawyer declined 6.5% on the year to $344,057, and average revenue per partner slid 2% year-on-year to $786,997. Top 10 average revenue per partner decreased to $1.23m from $1.31m, while bottom 10 average revenue per partner increased to $444,222 from $422,800.

The average earnings before interest and taxes of an equity partner was $356,488, the survey showed. That figure is down from $369,000 in the prior year. Fee earners were paid an average of $79,161, an increase from $74,000 in 2016, and non-fee-earning staff earned an average of $60,053, up from $52,000 in 2016.

Average gross profit margin is down to a still-impressive 75% from 78.9% in 2016. This is the margin after direct costs, mostly fee-earner salaries, have been deducted. Average net operating profit, or the profit available to partners before interest and taxes are paid, is 33%, down from 38% in the previous period.

Optimism has been tempered by political and policy uncertainty, said Michelle Malcolm, Crowe Horwath business advisory partner.

“It’s pleasing to see the sector is still anticipating growth in revenue going forward,” she said. “However, it’s a concern that their optimism isn’t what it was in 2016. This could be because of the change in government creating uncertainty, as 36% of respondents have cited ‘general economy and regulatory change’ as a risk and threat in the coming year.”

Sheryll Carey, ALMPA NZ chair and Lowndes Jordan general manager, highlighted what firms are focused on in fiscal 2017.

“It is clear that the outlook for growth remains high, with operating margins of more than 33%, which is great news for the legal sector,” she said. “With majority of respondents citing ‘team efficiency and culture’ as their key focus area for next year, it’s important firms have the right processes and people in place to ensure these areas are scrutinised and managed carefully.”

According to the survey, 18% of firms are focused on growing and diversifying revenue, as well as staff retention or expansion, while 8% are focused on innovation.

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