The pipelines of ongoing cases since the recession have dried, leaving law firms feeling the same financial pressures their clients have borne in recent years.
Law firm revenues dropped more in 2011 than any other year over the last three decades, as the pipelines filled with ongoing cases that buoyed lawyers through the recession dried, a New Jersey law expert said.
“Some firms have done acquisitions — and therefore, revenue has gone up on an organic basis — but most of the firms in New Jersey have seen their top line decrease,” said R. Max Crane, managing partner of Sills, Cummis & Gross P.C., in Newark. “We’re all driven by our clients, and our clients are feeling similar or worse pressures on their bottom lines than they did in the recession, so they’re justifying their legal spend more than they have in the past.”
According to a national law firm economics survey by ALM Legal Intelligence and The National Law Journal, while revenue per lawyer fell 4.2 percent on average among the 198 firms polled, large firms’ revenues were hit the hardest last year, as revenue per lawyer declined 10 percent at practices with 76 to 150 lawyers and 9 percent at practices with more than 150 lawyers. But one bright spot was the 41- to 75-lawyer bracket, which increased revenue per lawyer by 7 percent last year.
Crane said that’s a result of clients maximizing their cost savings by ditching big-city firms for smaller regional ones.
“New Jersey is a funny state, because it’s bookended by New York and Philadelphia, which are huge legal markets. That’s actually good for us, because what’s happening is companies are looking more carefully to see if they’re getting value for their spend,” Crane said. “Companies spending at a 1,000-lawyer firm in Manhattan now realize they can get equal or better service at 20 (percent) to 25 percent less of the cost at regional firms.”
However, only 1 percent of the 9,970 lawyers polled indicated plans to decrease their rates this year, while 70 percent said they would increase their rates by up to 5 percent.
But Crane said he’s been “seeing more pressure from clients for rate relief, and I don’t think that’s going to change in the long run. Still, he said, he expects to see revenue growth at his firm “in the flat to 5 percent range” for 2012, which 74 percent of the lawyers polled also project.
“I think there’s a little bit of pent-up demand, because I think with the clients that spend on outside counsel — even though they are still facing difficulties, it’s no longer an end-of-the-world scenario,” Crane said. “Law firms don’t create business; they really follow their clients. So when clients are feeling better about their prospects, law firms do better, and I think they’re seeing some light at the end of the tunnel.”