Now the dust has settled on the end of another financial year here in Australia with several firms having performed spectacularly well, others still reeling from being caught with their pants down in 2009, some long awaited salary increases for employees, an arithmetical increase in hourly rack rates, some new entrants in the marketplace and firm promotions having been proudly publicized (mainly employee promotions, a few non equity partner promotions, some lateral recruiting but no increase in overall equity numbers), what might lie ahead for the profession over the next few months? Anecdotally it would appear most firms are confident of things over the next 12 months with most firms planning and budgeting for growth which is going to prove interesting as I doubt whether the demand for legal services per se is likely to increase all that much over that same period except in some discrete areas (and a Federal election is always good for lawyers).
So where is all this growth going to come from?
Traditionally of course come 1 July firms could simply increase or at least maintain their profit margins by ratcheting up their rack rates even if they only experienced the same volume of work. Notwithstanding hourly rates are largely a “smoke and mirrors” exercise it is doubtful many clients in this market would be willing to accept net rate increases. Many have gotten use to the “discounts” still being offered out there.
Some firms will continue the increasing trend of the last 12 months and grow by simply buying a book of business to fill gaps in their market share but this is of course at the expense of other firms losing market share.
Again notwithstanding the market share myth and the problems many firms found themselves in over last couple of years when they discovered what the rest of the business world has known for 150 years, that increased revenue did not always equate to increased profit, we are sometimes slow learners so expect firms to be even more aggressive over next 12 months as they fight for this market share. Firms will increasingly look to find points of differentiation as to why clients should use them and not their competitor.
Sadly but appropriately this will mean some firms will not survive or at least in the format and structure they are now.
Whilst not quite the buyers market of the UK and US nevertheless most clients are finding more and more options and service offerings available to them and are flexing their influence like never before. Whilst the odd client will complain that it is all about price-and the odd law firm will believe them-most clients are working with their law firms to extract better overall value and this includes more certainty in scoping and pricing of work.
The trend of clients to increasingly adopt a "horses for courses" approach in who does their legal work and the realization that big is not always better will mean boutique quality firms and/or departments will continue to flourish.
New entrants into the market whether by way of start up firms or overseas firms will challenge some incumbents and the status quo but that is great news for clients and our profession generally. This will ensure we do not become complacent, and that only the fittest and most creative and innovative firms will survive and flourish.