Q1 PMI Number Crunching: Midsize Law Firms Rising

Topics: Client Relations, Data Analytics, Law Firm Profitability, Law Firms, Legal Innovation, Midsize Law Firms Blog Posts, Peer Monitor

PMI

The first quarter of 2017 was quite good to the average firm, as demand and rates both grew. Further, productivity continued to inch its way closer to level. The net effect resulted in an increase of 5 points to the Thomson Reuters Peer Monitor Economic Index (PMI), bringing it to 53 points, its highest level since Q2 2015. While the increases were not uniform across all three segments, rate growth in the Midsize Law Firm segment is particularly interesting upon further inspection.

For some time now, rate growth in the Midsize segment has lagged behind that of both the Am Law 100 and Am Law Second Hundred segments, at times by significant margins. The first quarter of this year was the first time since Q3 2013 where Midsize rate growth outpaced that of the Am Law Second Hundred.

PMI

On average, Midsize firms increased their worked rates by 2.8% relative to the first quarter of the previous year. This is a marked improvement of almost a whole percentage point on Q1 2016, when rates were raised by only 1.9%. This increase represents an opportunity for substantial growth in revenue for firms in this segment.

Relative to Q1 2016, four of the five lawyer titles have increased their worked rates, with the Staff Lawyers being the lone lawyer title with stagnating worked rates. Associates are leading the charge, increasing a whopping 4.7% year over year. Enjoying similar growth were both partner titles, with increases of 3.6% and 3.4% for Equity and Non-Equity partners, respectively.

The worked rate growth for these three lawyer titles in particular has the potential to be extremely impactful on a firm’s bottom line. Associates account for 31.7% of all worked hours in Midsize firms tracked by Peer Monitor, while the combination of both partner ranks account for 59.6%.

 

midsize

It wasn’t all sunshine and roses for Midsize firms, however, as their demand fell by 0.7% for the quarter. This may be a result of clients pushing back on the aforementioned rate increases.

It is too soon to make any definitive statements on the ability of Midsize law firms to realize these newly pumped up rates. Time will tell if the rate increases are significant enough to offset the decrease in demand, or if clients become increasingly resistant to the latest trend of rising rates in the Midsize segment.