Tuesday, September 11, 2012

2013 Law Firm Revenue Outlook Slows

Law firms are seeing a "material decline in demand" in the second half of 2012, according to a Bloomberg Law interview with consultant Kent Zimmerman of Zeughauser Group that was posted today on JD Supra.

Reinforcing the recent Citi Mid Year outlook on law firm financials, Zimmerman predicts a continuing decline of law firm revenues and profits through the close of 2012 and most likely into 2013. Watch the interview below.

Citi cites three primary reasons for concern:
  1. Demand growth slowed during the second quarter from an already tepid first-quarter level;
  2. Inventory as of June 30 had grown little from the prior year; and
  3. Realization is likely to decline again in 2012.
Slow job growth is at the heart of the problem, notes Zimmerman. The economy added only 96,000 jobs in August 2012, for example; well below expectations. Given the uncertainty surrounding the November presidential elections and the looming "fiscal cliff," employers are holding off on adding new workers.

Corporate Clients Put Pressure on Law Firm Pricing

One bright spot in the legal industry is the "LPO" sector, or legal process outsourcers. Low value (yet expensive) legal work like due diligence research and litigation discovery is increasingly being done by third parties, many of whom hire low cost contract attorneys on a contract basis.

Corporations are frequently driving this change, as they refuse to pay partner or even associate hourly rates for work that can be outsourced relatively easily with comparable quality levels. GCs are also increasingly choosing BigLaw firms for select bet-the-company transactions, while taking routine work to regional law firms or boutiques for lower rates.

Law Firms Advised to Lower Costs Now

"Get lean" is Zimmerman's advice to law firms. Proactive executive committee members who move rapidly to position themselves for more tough times ahead have the best chance of long term success, says Zimmerman. Depending on the depth of the decline, failures and/or strategic mergers are probable.

Suggested retrenching efforts include:
  • Take the tough steps of cutting under-performers
  • Reduce excess real estate
  • Sharpen the knife on fixed overhead expenses
  • Shrink in order to grow financially stronger
Focus on Strengths

This @RainmakingLady agrees with the advice that law firms should focus on the few key practice areas where they offer a distinct competitive advantage. Stand out and get on the short list by staking out clearly defined claims.

Legal Marketing Consultant

Legal marketing consultant Margaret Grisdela is available to discuss business development goals for small to mid-sized law firms. Contact her at www.legalexpertconnections.com, www.insurancedefensemarketing.com, or at 1-866-417-7025.

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