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Average profit rises, but still tough for many legal firms

13 February 2012

Average profit per partner in Scotland's law firms rose last year for the first time since 2008, according to the Law Society of Scotland's annual Cost of Time survey.

The report of the survey, to be featured in this month's Journal which publishes on 20 February, with further analysis in the March issue, confirms however that many smaller practices continue to find business conditions extremely difficult.

The 2011 survey showed average profitability across all 238 firms who took part, up 11% at £71,000 per partner. This marks a return to 2004 levels but remains well below the highs of 2005 to 2008.

Sole practitioner solicitors and smaller firms continue to be worst affected, in particular those which undertake legal aid work, with profits per partner averaging around £46,000 for sole practitioners and £75,000 for partners of 2-4 partner firms. Medium sized firms of 5-9 partners appeared to show strong growth with a per partner profit of £80,000, up from £66,000 in 2010, while 10+ partner firms, showed a sharp drop from the 2010 survey figure of £178,000 to £144,000 per partner. The sample of larger firms however was small, and included some different firms from those who took part the year before.

The study showed that sole practitioners outside the cities fared better than their urban counterparts, with median profits of around £57,000 compared to £42,000 and £40,000 in Glasgow and Edinburgh respectively. Sole practitioners in Aberdeen, Dundee and Perth fared worst of all, with median profits of around £29,000, although again this sample was small.

The research presented a more mixed picture for firms of 2- 4 partners, with little or no increase for rural firms, at £76,000. Those in Aberdeen, Dundee and Perth, remained at £72,000. The survey showed a significant increase for Edinburgh firms of this size from £51,000 in 2010 to £81,000, around the same level of profitability shown in 2006, while Glasgow firms showed a £10,000 drop to £67,000 last year. The Edinburgh and Glasgow results reflect differences in the make up of firms from 2010.

Lorna Jack, chief executive of the Law Society of Scotland, said: "The survey shows that there are still very mixed fortunes among our membership and, while it is heartening to see that overall, there has been a slight upward swing, it is apparent that smaller law firms continue to be hardest hit by the downturn.

"The report's authors Andrew Otterburn and John Pollock predict that the economic conditions will continue to prove difficult for solicitors throughout 2012 and we are encouraging our members to think very seriously about how they shape their business and look hard at their strengths and weaknesses to help make the most of opportunities.

"The legal services sector will remain highly competitive with clients continually pushing to get more for less, particularly in the current economic climate. We are committed to supporting our members in a rapidly changing environment, which is set to see the introduction of alternative business structures for law firms and increased consolidation, and will continue to promote Scottish solicitors as advisers of choice both at home and overseas."

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