Financial
Benchmarking 2014
The 2014 survey of law firms in Scotland
John Pollock and Andrew Otterburn
Contents
Foreword from the President of the Law Society of Scotland and Convener of the Remuneration Committee
3
About the authors
4
1
Executive summary
5
2
Introduction
6
3
Overall results
8
4
Sole principals
22
5
2-4 partner firms
30
6
5-9 partner firms
37
7
10+ partner firms
46
8
Salaries
54
9
Characteristics of the most profitable firms
59
10
Hourly cost
62
All rights reserved. No part of this publication may be reproduced in any material form, whether by photocopying, scanning,
downloading onto computer or otherwise without the written permission of the Law Society of Scotland.
© The Law Society of Scotland 2015
Published by: The Law Society of Scotland
26 Drumsheugh Gardens, Edinburgh, EH3 7YR
2
The Law Society of Scotland
Graham Matthews
Convener, Remuneration Committee
Alistair Morris
President
Foreword from the President of the Law Society
of Scotland and Convener of the Remuneration
Committee
The Society’s latest financial benchmarking survey
report shows improving fortunes for law firms,
with small to mid-sized firms showing the biggest
increase in profits per equity partner in 2014.
Our annual survey of firms’ financial performance gives us a
picture of the overall health of the profession, and the results
from the 2014 survey, which show an almost 8% increase
in overall profits per equity partners of law firms, support
increasing optimism expressed across the profession.
The report shows that smaller firms have largely driven the
rise, with 2-4 partner firms showing a 17% increase in profits
per partner from 2013. Larger firms continue to achieve the
highest profits per partner, although this year showed a drop
from 2013 figures back to 2012 levels for profit per partner,
indicating that there is still some way to go before we
experience pre-recession profit levels.
Overall, however, the legal sector has largely been successful
in weathering the economic storm of recent years. We have
seen significant consolidation within Scotland’s legal sector,
including cross-border mergers with firms in England and
Wales and global law firms. Some high-profile firms have
failed, but these have been few and, despite the downturn
and pretty sluggish recovery, the Scottish solicitor profession
now has more than 11,000 solicitors for the first time ever.
In addition to the economic climate, digitalisation and
technology, globalisation and new entrants to the market
have all contributed to a period of unprecedented change for
the sector. However, what remains key to running a successful
law firm is that solicitors require to be excellent business
managers, as well as having the legal knowledge and skills
expected of them by their clients.
This year’s report highlights that, while there are improved
bank balances, cash flow remains key and, for many firms,
getting paid promptly remains a major issue. Managing
cash flow and credit control is essential for any business
so being clear with clients about the cost and billing
arrangements is vital.
The Society is there to support its members and offers
training and information on a whole range of business
management and financial planning topics. We would
recommend that you take a look at our website
www.lawscot.org.uk and talk to the Society’s professional
support team about how we can help.
We would also like to take this opportunity to thank everyone
from all 185 firms who took time to complete the 2014
survey. We know that many solicitors find the report a highly
useful and important management tool which enables them
to measure their own performance as well as benchmark
their firm with other similar practices whether by size or
location, or both.
We hope you find this year’s report an interesting and
informative read.
Alistair Morris and Graham Matthews
3
The Law Society of Scotland
About the authors
Dr John Pollock, a consulting actuary, has been responsible
for the administration and statistical aspects of the cost of
time survey since 2002 and is a member of the Law Society
of Scotland Remuneration Committee. John is well known
to personal injury, employment and family law solicitors
in Scotland through his expert witness work at Pollock &
Galbraith Consulting Actuaries.
Andrew Otterburn is a management consultant and
has advised around 250 firms on their management and
profitability. He has helped in the development of the cost
of time survey since 1999, working initially with Professor
John McCutcheon and now with Dr John Pollock. Author of
“Profitability & Law Firm Management” (Law Society
2007), his new book, “From Recession to Upturn –
financial management and strategy for law firms”,
was published by the Law Society of Scotland in 2010.
Dr John Pollock
Andrew Otterburn
4
The Law Society of Scotland
1 Executive summary
The 2014 survey of law firms in Scotland is based on information provided by 185 firms, representing
16% of firms in Scotland. As far as we are aware, it is the largest annual financial survey undertaken
by any European bar association.
Overall totals
• Total fee income – £227 million, of which £75 million was in respect of court work and £12 million was legal aid;
• Fee income of the 11 firms with more than 10 partners – £148 million.
Profitability
• Overall profitability rose slightly from a median of £64,000 per equity partner to £69,000 this year. The increase is driven
purely by 2-4 partner firms, with all other size groups seeing profits fall;
• The profitability of firms in Scotland is lower than the rest of the UK, with the RBS/NatWest 2014 Financial Benchmarking
Report indicating median profit per partner of £107,000;
• It should be noted that “profit” is before any allowance for a salary and is before tax. An equity partner’s ability to actually
take any income is also dependent on the cash being available and that is not always the case, especially where a firm is
expanding.
Sole principals
• The median profit for sole principals fell from £47,000 to just £41,000;
• The profitability of sole principals is especially poor in Glasgow where the median was just £26,000;
• These very small firms often undertake legal aid and provide a key service within their communities.
2-4 partner firms
• The profitability and viability of 2-4 partner firms is much healthier with a median profit per equity partner of £74,000, up
from £64,000 last year;
• Capital per equity partner has increased this year for 2-4 partner country firms – from £37,000 last year to £54,000 this
year. Firms in Glasgow saw capital fall slightly;
• Fees per equity partner are very much higher for 2-4 partner firms than for sole principals and have improved in all areas
compared to last year.
5-9 partner firms
• These firms achieved median profits of £92,000 per equity partner;
• 5-9 partner country firms saw profits rise and a significant improvement in their bank balances from a median of £30,000
last year to £128,000 this year;
• Despite the higher levels of profit, median capital per equity partner for 5-9 partner country firms fell to just £52,000 –
down from £87,000 last year.
10+ partner firms
• Median profit per equity partner for 10+ firms was £163,000. Whilst these profits might appear high, it should be noted
that these are far lower than the top 100 UK law firms generally;
• Retained capital per equity partner was a median of £166,000 and in a quarter of firms was over £264,000.
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The Law Society of Scotland
2 Introduction
A total of 185 firms participated in the 2014 survey, representing 16% of the 1,192 firms in Scotland. As far as
we are aware, it is the largest annual survey undertaken by any bar association in Europe. A response rate of
this level for a voluntary survey continues to be good compared to other surveys of professional firms.
Overall totals:
• Total fee income – £227 million, of which £75 million was in respect of court work and £12 million was legal aid;
• Fee income of the 11 firms with more than 10 partners – £148 million.
The size and location of the firms is summarised below, based on the total number of partners each firm has – equity and
salaried.
Size and location of participating firms
Number of partners
Edinburgh
Glasgow
Aberdeen, Dundee, Perth Country
1
13
17
3
43
2-4
7
22
10
46
5-9
1
1
2
9
10+
7
4
0
0
Total
28
44
15
98
Total
76
85
13
11
185
The 185 firms comprise 1,761 fee earners.
Equity partners
Salaried partners
Associates
Qualified assistants
Consultants
Trainees
Unqualified assistants
2014
518
151
271
293
35
160
333
1,761
2013
566
186
272
289
31
175
398
1,917
1,045 of the 1,761 fee earners were working in the 11 largest firms.
The “average” financial year-end was 31 December 2013, with one quarter before 31 August 2013 and one quarter
after 31 March 2014.
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The Law Society of Scotland
2 Introduction
The survey has been conducted each year since 1984 and every firm in Scotland is invited to take part. A total of 81% of the
185 firms had participated last year, with 71% having contributed in each of the last three years. Although it would be helpful
to have a greater overall level of participation, and more new contributing firms, this group of committed participants does
contribute a measure of stability to the results.
The sample is self-selecting and this may introduce bias into the results in a manner that is not directly quantifiable.
There is a relative under-participation by sole practitioners and a relative over-participation of firms with 2-4 partners.
Each graph and table shows the median together with the lower and upper quartiles. The median is the middle value in the
range and is not influenced by the magnitude of the extreme values (as the arithmetic average or mean can be). The quartiles
indicate the range of values. A total of 25% of firms are below the lower quartile, and 25% of firms are above the upper
quartile.
The median figures are generally reliable, being based on fairly large samples. The quartiles are reliable for the largest
categories but should not be relied upon for the smaller groupings, where numbers can be very small.
It is important to note that prior to the 2013 survey, the classification of firms was by the number of equity partners.
Last year, the classification was changed and is now based on the total number of partners – equity and salaried.
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The Law Society of Scotland
3 Overall results
Profitability
Profitability is key to financial success and the chart indicates that overall profitability has increased slightly
this year. This overall rise was largely due to the better performance of the 2-4 partner firms that participated,
indeed all other size groups saw a decline in profits compared to last year.
Profit per equity partner (median)
£’ooo
250
200
1
150
2-4
100
5-9
50
10+
All firms
0
2006
2007
2008
2009
2101 2011
2012
2013 2014
1
77
77
92
55
49
46
53
47
42
2-4
83
103
108
77
74
75
67
64
75
5-9
93
107
105
84
66
80
76
99
92
100+
223
192
221
136
178
144
163
197
163
All firms
83
93
104
72
64
71
64
64
69
The second chart shows the profitability of each of the size groups and illustrates the divide between firms
with fewer than, and more than, 10 partners. A huge range is indicated, with a quarter of sole principals
earning less than £18,000 a year and a quarter of 10+ firms achieving profits per equity partner over
£300,000. Whilst the profits of the 10+ firms might appear high, it should be remembered that these are far lower than
the top 100 UK law firms generally. It should also be noted that a paper profit is not necessariy the same as
the actual amount of income partners are able to withdraw from the business. These figures are before tax and
part of a firm’s profits invariably have to be retained in order to fund working capital. An equity partner is not
paid a salary, as an employee is, and his or her profit share represents:
• The equivalent of a salary for working in the firm;
• Interest on capital invested in the firm;
• Rent if the partners own the firm’s offices – as many smaller firms do;
• Any balance represents a genuine profit to compensate for the risk of running a business – and for most
firms this will be very low.
8
1
profit is defined as total income less total expenditure (including any allowance for depreciation).
Net
It equates with the distributable profit as shown in a firm’s accounts.
Profit per Equity partner
350,000
300,000
£
250,000
200,000
150,000
100,000
50,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
18,107
45,551
67,872
119,731
35,323
Median
41,955
47,527
92,442
163,359
68,756
Upper Quartile
91,046
106,032
127,862
306,746 108,059
Upper Quartile
Median
Upper Quartile
Cash and partner capital
As indicated above, good levels of profitability are important; however, profit is not the same as cash in the
bank, and the key requirement for survival in any firm is cash.
Bank balance (median)
£’ooo
80
60
1
40
2-4
20
5-9
0
All firms
-20
-40
2006
2007 2008
2009 2010 2011
2012
2013
2014
1
5
4
5
3
4
6
4
7
7
2-4
12
11
10
8
9
27
6
6
10
5-9
14
42
-1
-27
35
65
44
31
30
All firms
6
8
6
3
5
12
5
8
9
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The Law Society of Scotland
The chart shows the movements in the median bank balance per firm in recent years – 10+ firms have been
excluded from the chart due to their volatility.
The chart below shows the range in 2013 and this indicates an overall median balance of £8,000, compared
to £5,000 in 2012. It is interesting to see that most firms do not have an overdraft and even amongst 10+ firms, there are not
significantly high levels of borrowing.
Bank balance per firm
800,000
700,000
600,000
£
500,000
400,000
300,000
200,000
100,000
0
-100,000
-200,000
-300,000
-400,000
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
0
-10,950
-9,480
-390,465
-4,415
Median
7,402
9,973
30,000
55,133
8,544
Upper Quartile
31,918
86,243
138,831
657,770 63,866
Lower Quartile
Lower Quartile
Median
Upper Quartile
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The Law Society of Scotland
Firms are funded by a combination of bank borrowing and retained partner capital. The chart below indicates
that for most size groups this has once again fallen and this is likely to be due to partners drawings exceeding
cash profits available:
Capital per equity partner (median)
250
£’ooo
200
1
150
2-4
1000
5-9
50
10+
All firms
0
2006
2007 2008
2009 2010 2011
2012
2013
2014
1
44
51
63
48
39
32
47
52
42
2-4
80
98
100
71
86
83
58
36
41
5-9
107
119
115
110
88
114
85
67
52
10+
188
187
225
173
202
159
150
179
166
All firms
76
86
88
64
74
71
58
48
50
The second chart shows a wide range of capital, from under £10,000 in a quarter of sole principals to over
£250,000 for a quarter of 10+ partner firms.
Capital per Equity partner
250,000
200,000
£
150,000
100,000
50,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
9,089
12,886
40,940
131,746
13,700
Median
42,184
41,321
51,631
166,214
50,089
Upper Quartile
114,221
86,332
98,380
263,838
112,081
Lower Quartile
Median
Upper Quartile
11
The Law Society of Scotland
Working capital
The key to most firms’ bank position is the speed at which work can be billed and paid. The chart shows trends
in debtor days, which is a measure of the efficiency of getting paid. The chart indicates improvements for most
size categories except, notably, 10+ partner firms, where the amounts owed have increased. Debtor days have
fallen for small and medium sized firms since 2008/9.
£’ooo
Debtor days (median)
100
90
80
70
60
50
40
30
20
10
0
1
2-4
5-9
10+
All firms
2008
2009
2010
2011
2012
2013
2014
1
43
35
35
15
33
23
24
2-4
41
33
34
30
34
31
30
5-9
50
48
43
31
44
38
34
10+
91
93
83
82
88
84
96
All firms
44
37
36
28
35
31
34
12
The Law Society of Scotland
This measure is calculated by dividing year-end debtors by each firm’s average daily fees. Because most firms
that undertake legal aid only post their legal aid bills when they are paid, average daily fees exclude legal aid
fees. Although we have made this adjustment for legal aid, care needs to be taken in interpreting these tables,
in particular, in respect of smaller firms as residential conveyancing will account for much of their fees. This is in
effect also accounted for on a cash basis and can distort this particular benchmark.
In the chart below, the very low figures for some smaller firms must be interpreted with care as much of their
work is in effect undertaken on a cash basis.
Debtor days
150
120
Days
90
60
30
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
4
13
23
68
10
Median
24
30
34
96
34
Upper Quartile
71
46
40
145
60
Lower Quartile
Median
Upper Quartile
13
The Law Society of Scotland
Profit drivers
There are a number of key statistics that firms should monitor as these can have a direct impact on profitability.
These include:
• Fees per equity partner and fees per fee earner;
• Staff ratios;
• Salary ratios – in particular, including a cost for each equity partner;
• Overhead ratios.
The chart summarises fees per equity partner and highlights the difference between firms with under 10
partners, where median fees per equity partner are approximately £200,000, and those with more than
10 partners, where the median is approaching £700,000. The chart indicates a progressive increase in fees
per equity partner as firm size increases and this is primarily a function of gearing.
Fees per Equity partner
1,200,000
1,000,000
800,000
£
600,000
400,000
200,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
57,071
143,153
205,867
564,652
103,442
Median
109,281
210,000
298,833
684,501
194,692
Upper Quartile
215,362
263,188
363,543
1,101,571
281,728
Lower Quartile
Median
Upper Quartile
14
The Law Society of Scotland
The second chart shows fees earned per fee earner and shows an overall median of £101,000 (compared to £103,000
last year). This chart also indicates an increase with size of firm; however, the trend is much less pronounced.
Fees per fee earner
160,00
140,000
120,000
£
100,000
80,000
60,000
40,000
20,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
48,570
81,042
91,424
110,601
72,060
Median
85,137
103,700
116,363
123,261
101,250
Upper Quartile
138,635
141,821
128,071
150,893
141,798
Lower Quartile
Median
Upper Quartile
15
The Law Society of Scotland
The chart shows the first of the two key staffing ratios – the number of fee earners in addition to each equity
partner, or fee earner gearing. This has improved slightly this year from an overall median of 0.7 last year and
0.5 the year before that.
Fee earner gearing
7.0
Number of fee earners
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
0.0
0.3
0.8
2.9
0.0
Median
0.0
1.0
1.3
6.1
0.8
Upper Quartile
1.0
1.9
1.7
7.0
1.7
Lower Quartile
Median
Upper Quartile
16
The Law Society of Scotland
The second chart shows the number of support staff to each fee earner and indicates a median of 1.0, which is
very similar to previous years.
Support staff per fee earner
2.0
1.8
Number of support staff
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
0.0
0.7
1.0
0.5
0.5
Median
0.7
1.1
1.1
0.6
1.0
Upper Quartile
1.5
1.7
1.5
0.7
1.5
Lower Quartile
Median
Upper Quartile
17
The Law Society of Scotland
The chart below shows the cost of all employed staff relative to fees. The overall median of 31% compares to
32% last year.
Salaries as a % of fees
50%
45%
40%
35%
30%
%
25%
20%
15%
10%
5%
0%
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
8%
26%
33%
39%
22%
Median
24%
33%
37%
42%
31%
Upper Quartile
36%
41%
39%
48% 41%
Lower Quartile
Median
Upper Quartile
18
The Law Society of Scotland
The second salaries chart includes an allowance for the cost of each equity partner:
All salaries (inc equity partners) as a % of fees
160%
140%
120%
100%
%
80%
60%
40%
20%
0%
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
69%
63%
62%
60%
63%
Median
99%
45%
68%
63%
77%
Upper Quartile
150%
88%
79%
68%
110%
Lower Quartile
Median
Upper Quartile
19
The Law Society of Scotland
In preparing the all salaries chart, we have used a notional salary of £83,500 or £150,000 for firms with
under/over 10 partners respectively. This has been included so as to reflect a cost for each partner as someone
working within the firm. Where the actual profits of the equity partners are below these levels, this results in
values greater than 100%.
The overheads chart indicates an overall median of 31% – the same as the last two years. The second
overheads chart shows overheads per fee earner, and this indicates a slight fall from the overall median last
year of £33,000.
Overheads (exc staff) as a % of fees
50%
45%
40%
35%
30%
%
25%
20%
15%
10%
5%
0%
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
27%
25%
24%
24%
25%
Median
34%
29%
28%
30%
31%
Upper Quartile
50%
35%
34%
37% 41%
Lower Quartile
Median
Upper Quartile
20
The Law Society of Scotland
Overheads (exc staff) per fee earner
50,000
45,000
40,000
35,000
30,000
£
25,000
20,000
15,000
10,000
5,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
19,042
24,915
26,752
33,459
22,570
Median
26,398
31,254
30,341
38,436
30,057
Upper Quartile
45,073
41,165
45,081
43,531
43,133
Lower Quartile
Median
Upper Quartile
21
The Law Society of Scotland
4 Sole principals
We had a good response amongst sole principals, with 76 participating.
Number of firms
Edinburgh
13
Glasgow
17
Aberdeen, Dundee & Perth
3
Country
43
76
Just three sole principals took part from Aberdeen, Dundee & Perth, so we have just showed the median.
Profitability
The profitability of the sole principals who participated is summarised in the chart:
Profit per equity partner - Sole Principals
120,000
100,000
80,000
£
60,000
40,000
20,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
29,674
14,857
30,391
Median
45,128
26,624
54,193
Upper Quartile
72,700
41,080
Lower Quartile
Median
70,213
107,629
Upper Quartile
As last year, the chart illustrates the very low profits of some of the Glasgow sole principals and the healthy
performance of the country firms, with a quarter achieving a profit of more than £100,000. Median profit per
partner for Glasgow sole prinipals has fallen from £45,000 last year to just £26,000 this year.
22
The Law Society of Scotland
Cash and partner capital
The chart summarises the bank balance of sole principals and demonstrates the stronger position of country firms
and the weaker position, as would be expected, in view of their low profits, of some of the Glasgow firms.
£
Bank balance per firm - Sole Principals
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
-100,000
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
0
Median
7,432
Upper Quartile
12,893
Lower Quartile
-8,000
0
5,762
18,931
Median
2,248
16,730
60,903
Upper Quartile
£
The chart summarises capital per equity partner:
Capital per equity partner - Sole Principals
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
17,608
10,012
5,000
Median
78,869
20,000
42,184
Upper Quartile
190,067
52,557
Lower Quartile
Median
37,965
129,786
Upper Quartile
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The Law Society of Scotland
The capital chart once again illustrates the strength of country firms and also indicates some good levels
amongst some Edinburgh sole principals.
Working capital
The chart illustrates low levels of debtor days amongst Edinburgh and Country firms but surprisingly high levels
in Glasgow and Aberdeen, Dundee & Perth:
Debtor days - Sole Principals
Days
100
90
80
70
60
50
40
30
20
10
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
0
0
9
Median
13
42
24
Upper Quartile
83
61
Lower Quartile
Median
34
71
Upper Quartile
It should be remembered that for many of these firms, much of their fees (in areas such as residential
conveyancing and legal aid) are in effect on a cash basis.
24
The Law Society of Scotland
Profit drivers
There are a number of key statistics that firms should monitor as these can have a direct impact on profitability.
These include:
• Fees per equity partner and fees per fee earner;
• Staff ratios;
• Cost ratios.
The first chart shows fees per equity partner. If the total fees of the firm are below £70,000, as is the case for
a quarter of Edinburgh and Glasgow sole principals, the actual profit the patners make will inevitably be low.
For a quarter of country firms, the equivalent figure exceeds £250,000, so providing much greater opportunity
for reasonable profits. The median fees per equity partner for country firms has also increased this year to
£150,000 from £135,000 last year.
Fees per equity partner - Sole Principals
300,000
250,000
£
200,000
150,000
100,000
50,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
68000
56352
60949
Median
90075
84000
150000
Upper Quartile
118511
141927
Lower Quartile
Median
164443
257074
Upper Quartile
25
The Law Society of Scotland
The chart shows the fees per fee earner – the median for sole principals in Glasgow has fallen from £67,000
last year to just £57,000 this year.
£
Fees per fee earner - Sole Principals
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
48,614 40,000 48,878
Median
79,177 57,521 97,346
Upper Quartile
99,143 86,843 Lower Quartile
Median
164,443 145,899
Upper Quartile
The chart indicates a wide range and this will reflect the types of work undertaken, and a range of other
factors such as location, how long established the practice is, and its reputation.
The gearing of most sole principals was zero – they had no other fee earners working with them. The exception was in Glasgow and in country areas, where a quarter of firms had a gearing of one.
The support staff chart indicates a wide range in support staff numbers for many sole principals –
the median for country firms for example is 1.0, but there is a big range.
26
The Law Society of Scotland
Support staff per fee earner - Sole Principals
Number of support staff
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
0.0
0.0
0.5
Median
0.0
0.3
1.0
Upper Quartile
1.0
0.5
Median
Lower Quartile
1.0
1.9
Upper Quartile
The salaries chart indicates that a quarter of Edinburgh and Glasgow sole principals have no staff. The median
% for country firms has increased from 21% last year to 26% this year. Similarly, in Edinburgh the median has
risen from 13% to 21%.
Salaries as a % of fees - Sole Principals
%
40
35
30
25
20
15
10
5
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
0.0%
0.0%
13%
Median
21%
11%
26%
Upper Quartile
34%
36%
Lower Quartile
Median
24%
36%
Upper Quartile
27
The Law Society of Scotland
The second chart includes an allowance for the cost of each equity partner.
All salaries (inc equity partners) as a % of fees - Sole Principals
%
180
160
140
120
100
80
60
40
20
0
Edinburgh Glasgow Aberdeen, Country All firms
Dundee
& Perth
Lower Quartile
90%
79%
62%
61%
Median
99%
119%
74%
75%
Upper Quartile
148%
172%
145%
110%
Lower Quartile
Median
77%
Upper Quartile
As would be expected, the profits earned by some sole principals are less than the notional salary
assumed in this calculation, resulting in values over 100%.
The median overheads as a % fees was approximately 30-33% in all areas except Glasgow.
Overheads (exc staff) as a % of fees - Sole Principals
70
60
50
40
%
30
20
10
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
25%
43%
27%
Median
30%
50%
33%
Upper Quartile
38%
70%
Lower Quartile
Median
34%
46%
Upper Quartile
28
The Law Society of Scotland
Overheads (exc staff) per fee earner - Sole Principals
£
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
17,085
18,111
20,002
Median
20,541
27,877
27,210
Upper Quartile
26,796
48,283
Lower Quartile
Median
44,112
43,728
Upper Quartile
29
The Law Society of Scotland
5 2-4 partner firms
We had a good response amongst 2-4 partner firms with 85 participating:
Number of firms
Edinburgh
Glasgow
Aberdeen, Dundee & Perth
Country
7
22
10
46
85
Profitability
The profitability of the 2-4 partner firms is summarised in the chart
Profit per equity partner - 2-4 partner firms
120,000
100,000
80,000
60,000
£
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
38,133
52,705
46,080
88,271
74,113
65,897
74,365
Upper Quartile
104,546
110,214
107,382
Median
Median
Lower Quartile
Upper Quartile
Median profit per equity partner amongst this size group increased compared to last year, especially in
Edinburgh and Glasgow, and as might be expected, were at levels higher than those of sole principals.
A quarter of the firms achieved profit levels greater than £100,000.
30
The Law Society of Scotland
Cash and partner capital
The median bank balances were broadly similar to last year with the exception of the firms in Aberdeen
Dundee and Perth, where the median increased from an overdraft of £3,000 to £40,000 in the bank.
Bank balance per firm - 2-4 Partners
100,000
80,000
60,000
£
40,000
20,000
0
-20,000
-40,000
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
-13,642
-8,188
227
-21,748
10,306
40,232
11,332
Upper Quartile
98,481
80,537
81,514
Median
Median
Lower Quartile
Upper Quartile
Capital per equity partner has increased this year for country firms – from £37,000 last year to £54,000 this
year. Firms in Glasgow saw capital fall slightly.
Capital per equity partner - 2-4 partner firms
120,000
100,000
80,000
60,000
£
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
7,446
31,313
18,968
470
28,770
42,614
54,423
Upper Quartile
73,363
105,185
100,099
Median
Median
Lower Quartile
Upper Quartile
31
The Law Society of Scotland
Working capital
Debtor days are broadly similar, and not disimiar to sole principals.
Debtor days - 2-4 partners
Days
50
45
40
35
30
25
20
15
10
5
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
16
22
5
26
36
34
27
Upper Quartile
47
41
45
Median
Median
Lower Quartile
Upper Quartile
Profit drivers
Fees per equity partner are very much higher for these firms than for sole principals and have improved in all
areas compared to last year.
Fees per equity partner - 2-4 partners
350,000
300,000
250,000
£
200,000
150,000
100,000
50,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
193,925
136,233
139,365
221,946
214,247
176,290
209,885
Upper Quartile
294,842
346,197
257,6659
Median
Median
Lower Quartile
Upper Quartile
32
The Law Society of Scotland
Fees per fee earner have barely changed compared to last year.
£
Fees per fee earner - 2-4 partners
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
86,967
83,596
80,074
92,015
111,996
102,475
111,938
Upper Quartile
140,387
133,073
143,455
Median
Median
Lower Quartile
Upper Quartile
Fee earner gearing is much healthier amongst the 2-4 partner firms, albeit still low relative to larger firms.
Fee earner gearing - 2-4 partners
3.0
Number of fee earners
2.5
2.0
1.5
1.0
0.5
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
0.5
0.3
0.3
1.1
0.9
0.5
0.9
Upper Quartile
1.9
2.5
1.8
Median
Median
Lower Quartile
Upper Quartile
33
The Law Society of Scotland
Support staff ratios vary slightly across the country; however, this may reflect the different sample sizes.
Support staff per fee earner - 2-4 partners
Number of support staff
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
Upper Quartile
Lower Quartile
0.8
0.6
0.8
0.7
1.1
0.7
1.2
1.4
1.3
1.8
Median
Upper Quartile
Salaries as a % of fees were lowest in Aberdeen, Dundee & Perth, at 27%.
Salaries as a % of fees - 2-4 partners
%
45
40
35
30
25
20
15
10
5
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
Upper Quartile
Lower Quartile
28%
22%
26%
32%
33%
27%
34%
43%
31%
41%
Median
Upper Quartile
34
The Law Society of Scotland
This key ratio of all salaries as a % of fees is clearly much better amongst 2-4 partner firms than sole principals.
All salaries (inc equity partners) as a % of fees - 2-4 partners
%
90
80
70
60
50
40
30
20
10
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
Upper Quartile
Lower Quartile
64%
70%
63%
65%
70%
83%
76%
86%
87%
89%
Median
Upper Quartile
Overheads relative to fees were broadly similar across the country.
Overheads (exc staff) as a % of fees - 2-4 partners
%
40
35
30
25
20
15
10
5
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
27%
23%
25%
30%
30%
28%
28%
Upper Quartile
33%
30%
39%
Median
Median
Lower Quartile
Upper Quartile
35
The Law Society of Scotland
For the firms that participated in the survey, overheads per fee earner were similar across the country at
approximately £30,000. It is fee income that is the key to variations in profit.
Overheads (exc staff) per fee earner - 2-4 partners
%
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
28,516
22,991
24,917
27,678
33,273
30,094
31,737
42,773
41,472
40,279
Upper Quartile
Lower Quartile
Median
Upper Quartile
36
The Law Society of Scotland
6 5-9 partner firms
Fewer 5-9 partner firms participated, most of whom were in Country areas:
Number of firms
Edinburgh
Glasgow
Aberdeen, Dundee & Perth
Country
1
1
2
9
13
Because of the small numbers of participants from the cities, this section analyses just firms in country areas.
We recognise the charts in this section look slightly odd, but have kept the same format as in other sections for
consistency.
Profitability
5-9 partner country firms saw a 18% increase in profits from a median of £104,000 last year to £123,000 this
year.
£
Profit per equity partner - 5-9 partner firms
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
87,276
Median
123,215
Upper Quartile
196,667
Median
Lower Quartile
Upper Quartile
37
The Law Society of Scotland
Cash and partner capital
The chart indicates a significant improvement in the bank balances of 5-9 partner country firms, from a median
of £30,000 last year to £128,000 this year. Part of these balances will be in respect of partner tax provision
and VAT, but the firms may also have made “rainy day” provisions or put money to one side for possible
acquisitions or mergers:
£
Bank balance per firm - 5-9 partner firms
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
-20,000
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
-9,480
Median
128,300
Upper Quartile
138,831
Lower Quartile
Median
Upper Quartile
38
The Law Society of Scotland
Despite the higher levels of profit, the chart indicates median capital per equity partner of just £52,000 –
down from £87,000 last year.
£
Capital per equity partner - 5-9 partner firms
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
43,880
Median
51,631
Upper Quartile
144,785
Lower Quartile
Median
Upper Quartile
39
The Law Society of Scotland
Working capital
Debtor days is higher amongst these 5-9 partner firms; however, this will be because more of their work is billed on a 30-day
invoice basis. The median for country firms has fallen from 44 days last year to 40 days this year.
Debtor days - 5-9 partner firms
Days
50
45
40
35
30
25
20
15
10
5
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
34
Median
40
Upper Quartile
46
Median
Lower Quartile
Upper Quartile
40
The Law Society of Scotland
Profit drivers
Fees per equity partner are much higher than amongst the smaller firms. It has risen this year for country firms
from £276,000 to £363,000 per equity partner.
£
Fees per equity partner - 5-9 partner firms
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
214,859
Median
363,448
Upper Quartile
435,219
Median
Lower Quartile
Upper Quartile
Median fees per fee earner for country firms have also increased, from £86,000 to £116,000 – a level slightly
better than the £111,000 per fee earner recorded by 2-4 partner country firms and the £97,000 by country
sole principals.
41
The Law Society of Scotland
£
Fees per fee earner - 5-9 partner firms
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
91,424
Median
116,363
Upper Quartile
160,504
Median
Lower Quartile
Upper Quartile
Fee earner gearing of 1.2 is slightly better than amongst the 2-4 partner firms, where the median was 0.9.
Fee earner gearing - 5-9 partners
Number of fee earners
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
0.8
Median
1.2
Upper Quartile
1.7
Median
Lower Quartile
Upper Quartile
42
The Law Society of Scotland
As might be expected in these slightly larger firms, support staff ratios are slightly better.
Support staff per fee earner - 5-9 partners
Number of support staff
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
1.0
Median
1.1
Upper Quartile
1.4
Median
Lower Quartile
Upper Quartile
At 37%, salaries as a % of fees are slightly higher than for country 2-4 partner firms, where the median was 34%.
Salaries as a % of fees - 5-9 partners
%
40
35
30
25
20
15
10
5
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
32%
Median
37%
Upper Quartile
39%
Lower Quartile
Median
Upper Quartile
43
The Law Society of Scotland
The key benchmark of salaries as a % of fees is once again better amongst the 2-4 partner firms.
All salaries (inc equity partners) as a % of fees - 5-9 partners
%
80
70
60
50
40
30
20
10
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
54%
Median
65%
Upper Quartile
79%
Median
Lower Quartile
Upper Quartile
Median overheads as a % of fees are unchanged from last year at 27%.
Overheads (exc staff) as a % of fees - 5-9 partners
30
25
20
%
15
10
5
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
24%
Median
27%
Upper Quartile
29%
Median
Lower Quartile
Upper Quartile
44
The Law Society of Scotland
Overheads per fee earner are slightly lower than for 2-4 partner firms due to the greater ability of these firms
to share overheads over more fee earners.
Overheads (exc staff) per fee earner - 5-9 partners
£
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
26,752
Median
30,341
Upper Quartile
45,081
Lower Quartile
Median
Upper Quartile
45
The Law Society of Scotland
7 10+ partner firms
Twelve 10+ partner firms participated, most of which were in Edinburgh and Glasgow.
Number of firms
Edinburgh
Glasgow
Aberdeen, Dundee & Perth
Country
5
5
1
1
12
Because just one 10+ partner firm took part from Aberdeen, Dundee & Perth, and just one country firm participated, this section
just analyses the firms in Edinburgh and Glasgow. The two other firms are, of course, included in the overall results in section 3.
It shoud be noted that many of the larger firms now have offices in both Edinburgh and Glasgow. Firms were asked to indicate
where they were based; however, that might be the office where the cash room partner was based, and may not be entirely
reliable.
Profitability
The profitability of these firms is shown in the chart:
Profit per equity partner - 10+ partner firms
250,000
£
200,000
150,000
100,000
50,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
161,208
228,630
Upper Quartile
Median
Lower Quartile
Upper Quartile
46
The Law Society of Scotland
Cash and partner capital
The chart shows the strong cash position of the Edinburgh firms:
Bank balance per firm - 10+ partners
1,200,000
£
1,000,000
800,000
600,000
400,000
200,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
1,165,154
178,161
Upper Quartile
Median
Lower Quartile
Upper Quartile
47
The Law Society of Scotland
Firms in both Edinburgh and Glasgow have comparable levels of partner capital invested:
£
Capital per equity partner - 10+ partners
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
179,867
Upper Quartile
Lower Quartile
180,037
Median
Upper Quartile
48
The Law Society of Scotland
Working capital
Debtor days are broadly comparable.
Debtor days - 10+ partners
Days
90
80
70
60
50
40
30
20
10
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
87
Upper Quartile
86
Lower Quartile
Median
Upper Quartile
Profit drivers
Fees per equity partner were approximately £700,000:
£
Fees per equity partner - 10+ partners
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
737,118
Upper Quartile
Lower Quartile
728,361
Median
Upper Quartile
49
The Law Society of Scotland
Fees per fee earner were on average £130,000 for this size group:
Fees per fee earner - 10+ partners
140,000
120,000
100,000
£
80,000
60,000
40,000
20,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
136,262
122,091
Upper Quartile
Median
Lower Quartile
Upper Quartile
As would be expected these firms have good levels of gearing:
Fee earner gearing - 10+ partners
6
Number of fee earners
5
4
3
2
1
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
5.8
5.7
Upper Quartile
Median
Lower Quartile
Upper Quartile
50
The Law Society of Scotland
These firms were able to achieve better support staff ratios.
Support staff per fee earner - 10+ partners
Number of support staff
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
0.7
0.6
Upper Quartile
Median
Lower Quartile
Upper Quartile
Generally salaries were lower as a % of fees in Glasgow:
Salaries as a % of fees - 10+ partners
%
45
40
35
30
25
20
15
10
5
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
45%
39%
Upper Quartile
Median
Lower Quartile
Upper Quartile
51
The Law Society of Scotland
All salaries (including an equity partner notional salary) was 60%:
All salaries (inc equity partners) as a % of fees - 10+ partners
70
60
%
50
40
30
20
10
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
63%
Upper Quartile
Lower Quartile
63%
Median
Upper Quartile
Very comparable overhead %s were achieved in Glasgow and Edinburgh:
Overheads (exc staff) as a % of fees - 10+ partners
%
40
35
30
25
20
15
10
5
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
35%
28%
Upper Quartile
Median
Lower Quartile
Upper Quartile
52
The Law Society of Scotland
Overheads per fee earner for 10+ partner firms were slightly higher in Edinburgh:
Overheads (exc staff) per fee earner - 10+ partners
£
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
Lower Quartile
Median
38,436
34,863
Upper Quartile
Median
Lower Quartile
Upper Quartile
53
The Law Society of Scotland
8 Salaries
This section summarises the salary information gathered in the survey:
Salaried partners
Salaries - salaried partners
£
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
0
40,000
43,750
70,833
44,250
Median
0
47,500
53,500
74,041
54,500
Upper Quartile
0
66,250
56,863
81,741 73,485
Lower Quartile
Median
Upper Quartile
Salaries - salaried partners
£
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Edinburgh Glasgow Aberdeen,
Country
Dundee & Perth
All
firms
Lower Quartile
67,783
40,000
50,000
40,500
44,250
Median
71,667
73,939
55,000
49,000
54,500
Upper Quartile
73,940
81,843
63,500
57,288 73,485
Median
Lower Quartile
Upper Quartile
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Associates
Salaries - associates
60,000
50,000
£
40,000
30,000
20,000
10,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
32,750
34,875
33,875
43,122
34,500
Median
38,464
38,090
36,000
49,441
40,000
Upper Quartile
42,335
42,508
45,000
53,483
45,000
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
All
firms
Lower Quartile
38,866
36,337
30,673
33,000
34,500
Median
41,659
41,600
31,346
36,000
40,000
Upper Quartile
49,581
50,656
33,798
42,500 45,000
Lower Quartile
Median
Upper Quartile
Salaries - associates
60,000
50,000
£
40,000
30,000
20,000
10,000
0
Lower Quartile
Median
Upper Quartile
55
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Qualified assistants
£
Salaries - qualified assistants
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Sole
2-4 Principal
Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
25,000
26,750
25,563
30,954
26,667
Median
30,000
30,203
28,113
33,555
30,337
Upper Quartile
36,000
35,694
33,000
35,402
35,542
Lower Quartile
Median
Upper Quartile
£
Salaries - qualified assistants
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Edinburgh
Glasgow Aberdeen, Country
Dundee & Perth
All
firms
Lower Quartile
30,317
28,500
26,918
25,495
26,667
Median
33,000
32,500
30,250
28,149
30,337
Upper Quartile
35,263
42,843
34,000
32,667 35,542
Lower Quartile
Median
Upper Quartile
56
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Unqualified fee-earners
Salaries - unqualified assistants
35,000
30,000
25,000
£
20,000
15,000
10,000
5,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
22,283
18,163
22,005
24,223
20,030
Median
24,500
22,000
24,544
26,337
24,000
Upper Quartile
31,250
25,375
25,645
29,653
27,750
Edinburgh Glasgow Aberdeen,
Country
Dundee & Perth
All
firms
Lower Quartile
22,534
23,790
19,663
20,000
20,030
Median
24,942
26,710
20,000
23,409
24,000
Upper Quartile
28,171
30,744
21,022
25,622 27,750
Lower Quartile
Median
Upper Quartile
Salaries - unqualified assistants
35,000
30,000
£
25,000
20,000
15,000
10,000
5,000
0
Lower Quartile
Median
Upper Quartile
57
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Trainees
Salaries - Trainees
25,000
£
20,000
15,000
10,000
5,000
0
Sole
Principal
2-4 Partners
5-9
Partners
10+
Partners
All
firms
Lower Quartile
15,000
17,383
14,000
18,150
16,700
Median
16,599
19,000
16,700
18,633
18,200
Upper Quartile
20,000
19,750
17,127
20,406
20,000
Lower Quartile
Median
Upper Quartile
Salaries - Trainees
70,000
60,000
£
50,000
40,000
30,000
20,000
10,000
0
Edinburgh Glasgow Aberdeen, Country
Dundee & Perth
All
firms
Lower Quartile
18,125
15,000
17,125
16,775
16,700
Median
18,829
18,633
17,383
17,777
18,200
Upper Quartile
19,875
19,000
61,625
20,000 20,000
Lower Quartile
Median
Upper Quartile
58
The Law Society of Scotland
9Characteristics of the most
profitable firms
For several years we examined the characteristics of the more profitable firms and these charts give the
average for the most and least profitable firms3 :
•
•
•
•
Gearing;
Fees per equity partner;
All salary costs (i.e. including a notional salary) relative to fee income;
Non-salary overheads relative to fee income.
Traditionally, firms with higher levels of gearing and fees per equity partner have achieved better profits.
Salaries and overheads relative to fees have also been at lower levels. The charts indicate the goals that firms
should have in mind.
Gearing
12
10
8
6
4
2
0
1
2-4 5-9 10+
Least profitable
0.3
1.1
1.2
5.0
Most profitable
1.7
2.3
2.0
9.7
3
Least profitable
Most profitable
T hose earning average profit per equity partner above the upper quartile and below
the lower quartile respectively
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Fees per equity partner
2,500
2,000
1,500
1,000
500
0
1
2-4 5-9 10+
Least profitable
47
144
220
548
Most profitable
385
404
464
1,964
Least profitable
Most profitable
It should be noted that in the chart below, “all salaries” includes an allowance for equity partner notional salaries,
hence the very high %s of some of the least profitable firms.
All salaries as a % of fee income
300
250
200
150
100
50
0
1
2-4 5-9 10+
Least profitable
256
127
76
73
Most profitable
60
57
55
48
Least profitable
Most profitable
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Non - salary overheads as a % of fee income
60
50
40
30
20
10
0
1
2-4 5-9 10+
Least profitable
55
55
36
38
Most profitable
28
24
25
22
Least profitable
Most profitable
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10 Hourly cost – the “cost of time”
Average hourly expense rates, by size of firm, geographical location and type of practice, are derived from the survey. These are
calculated according to the assumptions set out below and include a notional salary in respect of each equity partner, together
with an allowance for pension provision and interest on capital.
If each fee earner had generated fee income at his or her appropriate hourly rate for the assumed number of chargeable hours,
then the amount available for distribution among the equity partners would have been sufficient to provide each partner with
their notional salary, related pension provision and interest on capital.
The tables provide details of the average hourly expense rates derived from the survey for 2014 by:
• Level of fee earner
• Size of firm
• location
Average 2014 hourly expense rates (Mean)
£
All solicitors
Equity partners
Salaried partners
Associates
Qualified Assistants
Trainees
Unqualified fee-earners
2014
141
168
137
86
73
81
66
Note – “All solicitors” represents the average of all solicitors in the survey – equity partners and also those who were not equity
partners
All solicitors expense rate by size of firm4 and location (Mean)
£
Size of firm
Sole principal
2-4 partners
5-9 partners
10+ partners
2014
141
142
130
156
62
In this particular table the firms are classified according to the number of equity partners in order to provide comparability
with previous years. These figures are used by LPAC in determining judicial fees.
2
It is important to note that this expense rate may be used to determine the cost to a firm of doing a piece of
work. The charge to be made to the client may allow for other factors, having due regard to all the relevant
circumstances and in particular to:
•
•
•
•
•
•
•
Importance of the matter to the client;
Amount or value of any money or property involved;
Complexity of the matter or the difficulty or novelty of the question raised;
Skill, labour, specialised knowledge and responsibility involved on the part of the solicitor or assistant;
Time expended;
Length, number, and importance of any documents or other papers prepared or perused;
Place where, and the circumstances in which, the services or any
part thereof are rendered, including the degree of expedition required.
It is obvious that the number of hours per annum spent directly on work for clients is a crucial factor in
determining the cost of time. In view of the relatively small number of firms currently using time recording
methods, in most cases the values used for this parameter are necessarily estimates. Firms are encouraged
to use time recording methods (which need not be complex in nature) in order to maintain more accurate
financial control over their business.
Where a firm finds it has difficulty charging these rates, areas to explore will include:
• The level at which the work is being done. Could it be undertaken by someone less senior – a non-partner
solicitor rather than a partner, or an unqualified fee earner rather than a solicitor?
• How is it being done? Could it be done more efficiently, perhaps through better use of IT?
• Is this an area of work that the firm should be doing? If it is not possible to charge a realistic fee,
why do it?
Key assumptions
In calculating the hourly expense rates the following specific assumptions have been used:
• In the calculation of “all salaries”, and the expense rates, a notional salary of £81,500 has been used for
firms with under 10 partners, and £140,000 for firms with more than ten partners.
• Number of chargeable hours per annum for a full time fee-earner:
o Partners – 1,000
o Trainees – 800
o All other fee-earners – 1,200
It is important to distinguish between chargeable hours and total hours at work. Chargeable time is defined as
time spent directly on work for clients for which a charge will be made.
• Rate of return for interest on working capital: 2%. Where necessary, an average value of £50,000 per
equity partner has been used to estimate the working capital of the firm;
• Pension provision for equity partners: 17.5% of notional salaries;
• An inflationary growth rate for expenses based on movements in the retail price index.
A more detailed report on the Cost of Time, that forms part of the Society’s annual submission to the Lord
President’s Advisory Committee, is available free of charge from the Professional Practice Department at the
Society on 0131 476 8124 or [email protected].
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