Benchmarking: fee income grows and staff costs fall

Good management has reaped rewards for small and medium-sized firms, with increases in fee income and reductions in staff costs, research revealed last week.


The fifth annual benchmarking survey from the Law Society's law management section (LMS) involved 194 member firms, mainly of ten partners or fewer. It showed that average equity partner fee income rose by almost 10% to £470,000 last year, while average fees per fee-earner rose 5% to £94,000.


Employment costs dropped 18% last year - despite having risen by 10% the previous year. Fee-earners now cost an average of £23,757.


Tony Williams, management consultant at Jomati, said: 'There has been salary deflation for fee-earners, especially in the smaller firms. Instead of promoting people, firms are tending to hold them in the same position, and new staff are starting on a lower salary level. Firms may also be chiselling away at things like pension packages.'


Firms have boosted profits by increasing leverage from three fee-earners for each partner in 2003 to 4.78 last year. More than two-thirds now employ a practice manager.


LMS chairwoman Julia Balfour-Lynn said: 'Taking on a practice manager means firms are allowing non-fee-earners to take on the administrative burden in this difficult environment, where they are having to concentrate more resources on improving quality to maintain their competitive edge, and ensure compliance with regulations.'


At £203,981, London partners are delivering profits almost twice the national average. For the average firm, one quarter of total income was profit.


The survey, which was conducted for the section by accountants Baker Tilly, also highlighted increasing interest in Lexcel, the Society's practice management standard, and limited liability partnerships.


Rachel Rothwell