We understand that. Even so, the numbers and trend lines revealed here present a narrative worthy of the humanities.
Even better, we can sum it all up in three words: revenue per lawyer.
“Call me Ishmael” it’s not, but the phrase unlocks the mystery of how some of Missouri’s savviest law firm managers are guiding their businesses amid the industry’s continuing upheaval. Our annual MOney 20 financial rankings provide an exclusive look inside Missouri’s top-grossing law firms. In it you’ll also find a couple lessons for practices of all sizes.
It all starts with revenue per lawyer. If you’re a big-firm lawyer, and you think you’ve been working harder, you’re right. The numbers show that in the steady increase in RPL, the ratio of a total firm revenue divided by total attorneys. Since 2010, when the debris of the Great Crash of 2008 hit the legal industry the hardest, MOney 20 law firms as a group have increased RPL more than 19 percent to an average $500,670 in billings per lawyer per year.
The reason for the focus on RPL: It’s the ultimate measure of law-firm performance because it tracks lawyer productivity. Wrapped up inside the concept of RPL are several variables: average hours per attorney, average rate, firm headcount and firm practice mix. Each of those provides a lever for improving firm performance.
The easiest way to increase RPL is to raise rates, but increased competition and corporate-client scrutiny make that not so easy. The second-easiest way (easy for us to say, anyway) is to increase hours per attorney. But that, too, has its limits. So, the MOney 20 firms have found a third way: tilting the practice mix — often through acquisition and sometimes through restructuring — in favor of specialties that can command premium rates.
Increase RPL and you increase firmwide profitability. It’s how conservatively managed law firms do more with less. Or continue to grow the business without growing headcount.
Or, if you’re Polsinelli, it’s how you amplify the effects of expansion.
The most dramatic result of this year’s rankings is that firm’s vault of two places to second in the rankings. Since at least 2009, when the seventh- and 11th-ranked MOney 20 firms merged into No. 4, Polsinelli has been on a steady march, building its army through aggressive recruiting.
Over that span, the firm’s total number of attorneys has grown by 36 percent. The reason gross revenues have grown at more than twice that rate — by 74 percent, in fact — comes back to RPL. Per person, Polsinelli lawyers in 2013 booked more than $116,000 in billings than their 2009 counterparts. As firm chairman Russ Welsh explains to senior reporter Heather Cole in our story on page 8, “Our goal is not to add numbers for numbers’ sake.”
So what are a few of the takeaways for practitioners outside the MOney 20?
First, the fundamentals of RPL apply to all size practices, even solo ones. You don’t have to command a nine-figure operation to adjust the dials on rates, hours or areas of specialty to improve profitability.
Second, big law’s shift to higher-premium practice areas creates opportunities for smaller shops with more nimble cost structures. The more traditional work that used to be the big firms’ bread and butter can now be yours.
Third, it’s not just the big-firm lawyers who are working harder. That’s not part of the MOney 20 rankings, but it still needed to be said.