Legal Benchmarking Report 2022: How does your firm compare?

Our 9th Benchmarking Report considers data from 2021 as well as survey responses from across the country.

88% are planning to increase staff numbers in 2022.

43% of firms plan to change how they use IT.

Net profit % increased in the majority of firms.

Executive Summary

The data featured in this report includes part of a year when the country was still working in lockdown during the original outbreak of the COVID-19 pandemic. In some firms it will therefore represent how well the business dealt with the transfer to working from home, how soon offices reopened, what changes were forced upon those legal practices and what strategic decisions were made.

Across the legal sector there is optimism for 2022; there is new work flowing in across all disciplines and a growing demand for legal services. Efficiencies have been taken from the COVID-19 pandemic and these will continue to be incorporated into future working practices.

However, a critical issue is staffing the demand for work. Higher salaries, inflationary pressures and competition for staff will get harder in 2022. Firms will need to do more to retain their staff and look at ways to compete in the recruitment market in order to grow.

Key findings

  • Income

    Total fee income was negative in % terms across all sized firms except 5-10 partners who recorded an increase of 4%.

    Income per fee earner varied, with 11-25 partner firms seeing the largest increase.

    Ratio of fee earners to Equity Partners fell across all firms except 5-10 partner group.

    2022 is seeing more pressure on staff retention which impacts the chargeable hours pool.

    For further details on income, please click here.

  • Profit

    Fee earner contribution rates ranged from 31%-39% except in extreme circumstances where 5-10 partner fee earners contributed 46% and sole practitioners only 19%.

    Net profit % increased between 4% and 6% except for 5-10 partner firms who saw a fall by 4%.

    Profit per Equity Partner has increased in all but the 5-10 partner firms. 11-25 partner firms recorded an increase of 45%.

    2022 is expected to be a tough year for profitability as salary and other overhead costs see huge inflationary pressures.

    For more information on the profit section of the Legal Benchmarking Report, please click here.

  • Employment Costs

    The cost of employing a fee earner ranged between £85k and £105k. Last year this was between £82k and £95k.

    Total salary costs as a % of fee income ranged from 60% to 72%

    85% of survey respondents are planning to increase staff numbers in 2022. This is partly due to growth plans in both current and new legal services.

    2022 is seeing more pressure on staffing levels with fee earners leaving the sector or taking on new roles within other firms.

    The talent pool is shrinking and therefore firms might start to see a bidding war for fee earners.

    For more information on employment costs, please click here.

  • Practice Expenses

    For marketing and PII costs, there is very little differential between what each size of firm spends.

    Premises costs are hit hardest in the smallest and largest sized firms.

    IT spend is almost 4 times higher in the largest firms compared to the smallest.

    There is a 9% difference in salary costs in the smallest versus the largest practices.

    The largest split in expenditure is across ‘other overheads.’

    For more information on practice expenses, please click here.

  • Finance and Funding

    Equity partner capital invested has risen across all sized firms.

    Equity partner capital has more than doubled in 2-4 partners and over 25 partners.

    Lock up has risen in all but the sole practitioner group.

    Average work in progress (WIP) increased by 10 days over the year and by £197k. If the billing period was shortened by just 1 day, then £18.5k on average would be released from WIP into debtors.

    Please click here for more information about finance and funding for legal practices in 2022.

  • 2022 Plans

    The top 5 strategic priorities for the sector include:

    1. Recruit new staff
    2. Retain staff and focus on their wellbeing
    3. Invest in IT
    4. Business development and marketing
    5. Business growth

    Please find more information about the strategic priorities for legal firms in 2022 here.

  • The future of the legal sector

    Across the sector as a whole there is optimism for 2022 to be a year where there are positives in a number of areas.

    There is new work flowing in across all disciplines and further growing demand for legal services, rather than a peak, the like of which we saw following the stamp duty exemption that boosted the residential conveyancing market.

    Teams are happy to be back working in their office environments, or have taken advantage of new agile working procedures that have been offered by employers. Whilst there was a productivity drop in chargeable hours as everyone re-acclimatised to office working, there seems to be a surge in hours matching demand for services. We are hopeful that some of the efficiencies that were learned by home working through the different lockdown periods will be continued into future working practices.

    Whilst we see demand increasing, the critical issue for firms is staffing for the workloads. The economics of supply and demand are generating huge salary increments and staff requesting more benefits, including flexible working procedures that may have not been available to them in the past. The competition for staff will get harder in 2022. Firms will need to understand exactly what they need to do to retain their staff.

    Please find more information about the future of the legal sector here.

Please click below for more insight and analysis on key sections of the Benchmarking report

Income

How did income change for legal firms in 2021? And what is planned for 2022?

Read more

Profit

We have analysed profit levels of legal firms and discussed what to expect in 2022.

Read more

Employment Costs

How have employment costs changed and what do we expect to see in 2022?

Read more

Practice Expenses

Find out more about how practice expenses have changed in the past twelve months.

Read more

Finance and Funding

How did firms raise finance over the past year? Our finance and funding section investigates.

Read more

2022 Plans for Growth

We have looked at the key trends for legal firms as they look to grow in 2022.

Read more

Find out more

If you would like further guidance or to discuss our Legal Benchmarking Report, please contact one of our specialists at your local MHA member firm