70% of Australian law firms increased their profit in FY2010, according to a new industry benchmarking survey conducted by Macquarie Relationship Banking.

When asked to identify the key reasons for this increased profitability, 64% of firms nominated increased revenue as a factor.  Cost cutting was a relevant factor for 22% of firms and “efficiency improvements” were a relevant factor for 43% of firms.  Profitability figures, of course, do not tell the full story on a firm’s prosperity and it is well known that law firms in some overseas markets are achieving improved profitability through cost cutting rather than increasing market share or workflow.  These survey results from the Australian industry appear to paint a more positive picture, with stronger revenues playing a greater part in profitability than cost cutting.

However, higher revenue does not necessarily indicate more demand for legal advice.  The survey found that a majority of firms (56%) had increased their gross fees in FY2010 and expected to do so again this year.  When asked to nominate the planned fee increase, 16% of firms said that gross fees would be at least 20% higher, 28% said that fees would be 10-19% higher and 27% said that fees would be 1-9% higher.

These survey results were drawn from a survey of 107 managing partners, CEOs and other senior legal professionals during November 2010.   Caution is required when applying these findings to large national firms – many of the survey participants were smaller firms with revenue less than A$4m per year.  The survey did provide separate data for larger revenue firms, but the criterion for this category was revenue income of A$4m and above.  Accordingly, a significant proportion of the survey participants are likely to have been at the private client/ SME/ mid-market end of the scale.

Last year, the ALB 30 survey found that revenues for national corporate firms ranged from A$500m for the “mega-firms” down to around A$50m for mid-tier firms.