Law firms spend around 60% of their fee income on their people, with staff costs in London at 'remarkably' high levels, recently released research has found.

The financial benchmarking survey of 175 small and mid-sized law firms by the Law Society's Law Management Section and accountants BDO Stoy Hayward found that the median fee-earner cost in 2003 was 28,926 in England and Wales; this rose to 42,431 in London.

Overall, non-partners accounted for 45% of fee-income, while partners' notional salaries were estimated at a further 15%.

The research found that fee-earner costs increased rapidly - 10.6% up on 2002 - and faster than income (see [2004] Gazette, 29 April, 5).

Costs for support staff grew by 5.6%, reaching a national average of 15,883 (25,586 in London).

The high cost of employing staff in London means that 'for firms with offices both in London and outside, the clear implication is that as much back-office work as possible should be moved out' of the capital, the report said.

While law firms' fee-earner leverage was improving - with a rising average of about three fee-earners per equity partner - it was going the other way for support staff.

The median number of support staff per fee-earner dropped to about 1.2.

Sole principals were the best leveraged by size of firm, with an average of four fee-earners, while legal aid firms were at 4.5.

When broken down by specialisation, there was an average of only two fee-earners by criminal law partner, rising to about three per personal injury and clinical negligence partner.

The rise in leverage led to a 9.4% rise in median fee income per partner to 429,553.

When broken down by size of firm, sole practitioners fared the best at 608,375, while residential conveyancing partners were in the best practice area.

Nonetheless, overall, the median fee income per fee-earner (including partners) was up just 5% at 89,262.

Legal aid firms brought this down with their average of just 75,217.

The survey found: 'The increasing cost of fee-earners is offset to a certain extent by the lower number of support staff for each fee-earner and a relatively lower rate of increase in other overheads.'

Sole practitioners achieved the best average profitability and profits (31%, 130,595) and firms with two to four partners the worst (19.5%, 89,471).

London firms (28%, 130,595) were noticeably more profitable than elsewhere in England and Wales (25.4%, 97,947).

Neil Rose