A short history of boom and bust

The economics of law firms are not difficult to comprehend. For the average UK LB100 firm there were two things that happened between 2004 and financial year 2007/08. The first was that demand for legal services expanded so quickly that firms were able to achieve significant growth in per-lawyer revenues year-on-year. In the ten years to 2004, revenue per lawyer (RPL) for the LB100 as a whole grew by about 60%; between 2004 and 2008 it grew by another 30%.

The second key thing that happened was that per-lawyer costs also grew quickly – by 22% over the same period – as firms invested in people and networks. But as long as revenue growth outstripped the rise in costs each year, which it did, there could be no complaint.

Equity partners certainly couldn’t grumble. They benefited most of all from these dynamics. Per-lawyer profit expanded by 51% during this cycle, so that, by 2008, the average one among them was taking home just shy of half a million pounds (£473,000).

In fact, over the course of the four years to 2008 the average equity partner took home more than £1.6m.

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