‘Tale of two markets’ as biggest Irish law firms see biggest profit increases
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Most Irish law firms have succeeded in increasing fees over the past 12 months but smaller firms have struggled to keep up with larger firms in turning increased revenue into increased profits, according to a major survey.
Professional services and wealth management group Evelyn Partners has published the findings of its 15th annual Ireland Law Firm Survey, conducted by Red C Research and collating the views of senior legal practitioners from 111 law firms across the State.
Some 69 per cent of firms have increased fees in the past year, including 90 per cent of Top 20 firms and 70 per cent of smaller firms, according to the report.
However, while all Top 20 firms reported increasing revenues over the previous 12 months, the same was only true for two-thirds of smaller firms. Nine per cent of firms reported a decline in revenues.
Around one in four firms think the legal sector generally improved over the past 12 months and will continue to do so in the next 12 months.
However, a notable minority — consisting exclusively of smaller firms — believe that the outlook for the legal sector in Ireland has deteriorated in the last year (17 per cent) and is expected to remain challenging in the next 12 months (19 per cent).
Top 20 firms were almost universally able to convert increased revenue to increased profits and were more successful in maintaining their margins, the survey found.
Among smaller firms, only half reported increased profits and nearly one in five signalled a decline in their profitability, notably experiencing a greater squeeze on their margins.
Smaller firms focused on reducing operational costs to increase profits, while Top 20 firms’ performance was driven by focussing on sales and marketing, new markets and services and engaging third-party advisers.
For larger firms, primarily in Dublin, attracting and retaining staff is a real issue, with firms continuing to respond with pay and reward package increases over the previous 12 months. Nine in 10 have delivered pay increases of up to 15 per cent, as well as a variety of other initiatives.
For smaller firms, the challenge of attracting and retaining staff may not be as significant as perceived, the report says. Seven in 10 non-Top 20 firms report low turnover of staff, 60 per cent report they have no vacancies, and 40 per cent did not have pay increases.
John O’Callaghan, managing partner at Evelyn Partners Ireland, said: “While smaller firms are more focused on ‘nuts and bolts’ challenges, their Top 20 competitors are focused on more strategic issues and are investing in initiatives and technology to address these.
“The scale and availability of capital in smaller firms means that strategic choices on where to invest resources are more important but often impeded by time and information constraints.
“We believe many firms find that the management information required to run an effective operation, maximise cash for investment and deliver efficient operations and client service is a significant impediment to progress.”
Con Casey, head of advisory, added: “Following a rollercoaster period of extreme pessimism and cautious optimism during the pandemic, the legal sector in Ireland has stabilised, somewhat reverting to trend.
“However, as we look to the future, we see a ‘tale of two markets’ with the top firms outperforming and full of optimism, while the majority of smaller firms outside the Top 20 anticipate stability at best.
“There are also some stark differences between Top 20 firms and smaller firms when looking at challenges they identify. While larger firms are more focused on the areas that will add value and are client focused, this contrasts with the more operational and compliance focus of their smaller rivals.”