FY11 Legal Industry Benchmark Results Announced by ALPMA

The Australian Legal Practice Manager Association (ALPMA) today released the FY2011 results for its national financial benchmarking tool for law firms.

ALPMA National President , Warrick McLean, General Manager of Coleman Greig Lawyers commented “this is the second time that we have undertaken the survey and we are slowly starting to see some interesting trends in the profession.”

“The benchmarking tool highlights eight key financial indicators of practice health and results can be compared across a number of filters such as fee revenue and work type.”

McLean said “The 2011 results reflect downward trends in overall profitability compared to 2010, as the impact of Australia’s two speed economy takes effect. More and more the need for appropriate business management in law is critical to operating a successful firm.

No longer can firms assume that work will walk through the door, especially in the small to mid tier market. Firms need to take an outward looking view, have a clear vision of where they want be and actively manage their pipeline of future work."

Having an industry wide understanding of current metrics by which law firms can measure their value helps both professional practice managers and partners. Key measures being reviewed include profitability, work in progress days, debtor’s days.

ALPMA has used Crowe Horwath’s Open Measures tool in this study.

McLean further commented that “compiling financial data for some firms can be a real time challenge due to limited resources, but Crowe Horwath have made the process seamless and efficient.”

ALPMA has provided results to participating member firms at no charge. McLean said “This was particularly important to ALPMA because member offerings such as this survey, align with our vision of adding value to the business of Law.”

Law firms can still participate in the survey for a nominal fee. Please contact Nicki Hauser at ALPMA for further information.

Australian Legal Industry Benchmarking Overview

Read the Summary

Crowe Horwath Financial Performance Benchmarking Study of Australian Law Firms (298 KB)
Crowe Horwath are delighted to partner with Australian Legal Practice Management Association (ALPMA) to deliver the financial performance benchmarking study of Australian law firms. This landmark study has been produced using Crowe Horwath’s proprietary benchmarking tool, Open Measures, enabling Australian law firms to compare the financial health of their practices to that of other firms. This document is a summary of the survey resul

Why was this research done?

In competitive times there is an increasing demand for better business management of law firms. Having an industry-wide understanding of current metrics by which these businesses can measure their value helps both professional practice managers and partners or owners of the business. ALPMA is hoping to achieve greater awareness of the difference professional practice management can make to a law firm

What are the key observations?

1. Bigger is not always better. Firms should focus on growing the value of their business first – rather that the size of their practices.
2. Lock up remains a key issue. As things tighten in the world economy and Australia deals with a two speed economy, firms need to take a more commercial approach to managing debtors and WIP with the assistance of professional managers
3. Overall law firms are cautiously optimistic about the future with expectations of revenue growth of between 5-6%, but are trending downwards compared to initial survey results which were conducted in April 2011, suggestions firms are not as bullish compared to six months ago.
4. Average gross profit has decreased across the sample in 2011 compared to 2010 results. Hypothesis: The cost of running a legal practice is increasing at rate faster than organic revenue growth.

What should firms be doing to improve their profitability?

1. Know what your costs are. That is, the gross contribution of fee earners and the profitability of every client.
2. Educate every fee earner about the financials of a practice and how the business works.
Know what has the most immediate impact on profit in your firm. This can be different for every firm.
3. Focus on the work that distinguishes your firm and leverage that expertise and client base. Don’t spread yourself too thinly.
4. Actively build your pipeline of future work – don’t measure success on work being done today.

How was the research done?

Joint effort by ALPMA and Crowe Horwath
Law firms submitted their numbers to Crowe Horwath.
Analysis and results on Open Measures – a proprietary benchmarking tool developed by Crowe Horwath.
This annual survey has been undertaken for the 2010 and 2011 financial years.

About ALPMA

The Australian Legal Practice Management Association, (ALPMA), is the peak Australian body representing managers and lawyers with a legal practice management role. ALPMA provides an authoritative voice on issues relevant to legal practice management. Members of ALPMA provide professional management services to legal practices in areas of financial management, strategic management, technology, human resources, marketing and information services and technology. ALPMA, is a not for profit organisation, which provides ongoing education for law firm managers, managing partners and lawyers generally. ALPMA provides networking opportunities and CLE for over 800 firms in Australian and New Zealand.

About Crowe Horwath

Crowe Horwath Australia is part of the WHK Group Limited - the fifth largest accounting and advisory firm in Australasia and Australia’s largest provider of accounting and financial services to SMEs with more than 3,000professionals working in 120 offices in Australia and New Zealand. In FY10 revenue for the group was $413.2M. Crowe Horwath Australia is a member of Crowe Horwath International – one of the largest professional services networks in the world.

For further information on Crowe Horwath’s benchmarking tool, Open Measures, go to www.openmeasures.com

For further information about Crowe Horwath go to www.crowehorwath.com.au