Law firm profitability is at a record high. The average equity partner, at an Am Law 200 firm, received $1.8 million in profit sharing compensation last year. This is higher than any point in recorded history (the Am Law 200 data goes back to 1984). Average profits per equity partner are nearly $500k dollars more, in nominal terms, than they were at the peak in profitability experienced before the past downturn. Even after adjusting for inflation, profits per equity partner are $125k per year more than they were a decade ago. Not bad if you ask me.
Given the myriad of obstacles law firms are facing, such increases in profitability seem striking. If clients are becoming more discerning buyers, profitability should be coming under pressure. Rising competition from alternative service providers and the ever-forward march of technology adoption should be having a similar, negative, effect on profitability. This raises an obvious question – how are law firms doing it?
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