Profitability and fee income continue to grow at small and medium law firms – but they should expect tougher conditions in 2016, according to the latest edition of an annual benchmarking survey. 

NatWest’s fourth Legal Benchmarking Report, based on data from 390 firms with turnovers below £46m, shows a 6% increase in fee income last year. However median profits per equity partner grew by 3.7%, to £111,000. The median profit margin remains steady at 24%. 

Steve Arundale (pictured), head of commercial professional sectors at NatWest said: '2015 was another positive year for firms, with most measures of performance continuing to improve. However, this is at a slightly slower rate than we saw in 2014.

'Early indications suggest that 2016 could carry some performance challenges for many firms. Business levels witnessed in 2015 could be described as the new, post-recession norm; and many firms appear to be struggling to deliver growth levels achieved in the previous two years.'

More than 390 firms employing 17,200 people in England, Wales and Scotland took part in this year’s research, produced with Robert Mowbray of legal consultancy Taylor Mowbray.

The research showed strong regional variations in fee income, with London achieving 10% and the north-east and north-west only 4%.

Confidence has dipped slightly for the next year, with 44% of firms predicting fee growth to rise by 10% in the next 12 months, down from 56% last year. Median lock-up is 109 days, a slight increase from last year.

The 2016 Legal Benchmark Report is available here.