This year, only one in five firms reported a fall in revenue. This is a reversal of what was a worrying trend in our 2018 benchmarking results, where 30% of participants reported a shrinking top line. The improvement is good news and is indicative of a year which many firms might consider to be a triumph over adversity. 47% of our participating firms enjoyed growth in PEP of more than 10%, and this in a period when the wider economic mood might have suggested a different story.
We suspect that firms have been mindful to control cost wherever possible and this, coupled with some stronger than anticipated revenue growth, has contributed to a healthy bottom line. There certainly appears to be a level of self-confidence at the moment, with four-fifths of regional participants having a positive, or very positive, outlook for their firm for the coming year. This is notwithstanding that only one in eight participants shared the same view for the UK economy. Creating and capitalising on opportunities in tough economic times must be an open agenda item for many law firm boards and management committees.
Regional firms continue to invest in headcount. Total heads increased by 2.1% this year (3.7% in 2018), with a focus on building up the fee earner pool. This contributed to an average ratio of 1.29 fee earners for every member of support staff; up from 1.26 last year.
With fees generated per fee earner increasing by just 1.3% to £127,200, the demand for quality staff is still high as revenue remains closely linked to headcount. This demand is reflected in a 3.7% increase in the average cost per head; considerably higher than the 0.9% reported by participating city firms.
In the coming 18 months, more than half of firms plan to:
With retention of key people being a critical business risk identified by more than half of regional firms, it is no surprise that the same proportion plan to update their people development strategy in the coming 18 months and one in five plan to significantly increase their fee earner headcount.
Total partner headcount increased by a modest 1.8% this year but splitting out the top-tier (senior equity) numbers makes more interesting reading. The aggregate all-firm number of top tier partners fell by almost 2%, with one in eight firms reducing the number of their senior partners. This has a positive impact on PEP figures but the key question is whether this change is a result of natural retirements and succession or a planned move to a tighter control on senior equity.
Many regional firms will be looking closely at their outgoings in the coming 18 months as more than half of participants plan to focus on cost control. Boosting profitability will be a primary driver, but we suspect that building in some resilience in uncertain times will also be a factor.
This extends to remuneration. Almost a third of firms are planning to change their partner remuneration model and more than a quarter plan to do the same with their employee remuneration and benefit structure. Balancing reward with motivation, performance and retention remains a priority.
This year's headline results show another year of steady performance. But look a little deeper and we find greater volatility in both revenue growth and profitability.
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