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US legal business news: it’s still the economy stupid

According to ALM Legal Intelligence, in its latest annual Survey of Law Firm Economics, average revenues at US law firms declined more in 2011 than in any year since the survey began tracking that metric in 1985.

After falling in 2008 and 2009, law firm revenue per lawyer (RPL) rebounded to its highest level ever in 2010. Last year, RPL fell back to earth and declined by an average of 4.2% nationwide (from $451,000 in 2010 to $432,000 in 2011). Despite that large year-over-year drop, however, the overall average RPL last year is still the second-highest figure ever recorded by the survey.

Firms on the larger end of the survey scale took some of the hardest revenue hits. Those with 76-150 lawyers saw revenue per lawyer decline 10% (from $474,000 to $426,000) and for firms of 150 lawyers or more, the drop was 9% (from $505,000 to $460,000). In fact, RPL declined in four of the six law firm size categories, with the exceptions being firms in the 10-24 lawyer (increased 4%, from $355,000 to $370,000) and 41-75 lawyer (increased 7% from $395,000 to $423,000) niches.

Other findings included the following:

No sign of merger fever – although the economy is still uncertain and the law firm business model has been challenged, 58% o respondents said their firm is not interested in a merger;

Modest growth expected – four in 10 law firms (41%) expect their profits per partner to grow by 5% or less in 2012 and one in three (33%) project their profitability will be flat;

Moderate rate increases planned – the vast majority of respondents (70%) plan to increase their billing rates by 5% or less in 2012, 20% plan to hold rates flat, 9% plan to increase rates by more than 5% and 1% plan to decrease rates;

Litigation is the hot spot – when asked which practice area they expected to achieve the most revenue growth in 2012, 43% named Litigation, far and away the number-one response (Corporate was second, named by 24%);

Alternative fee arrangements (AFAs) are not taking off – for the vast  majority of US law firms, AFAs still represent a small percentage of billings, with 67% of respondents indicating that 0-10% of their firm’s billings were valued by an AFA and another 23% pegging that share at 11-25% of total billings, roughly the same rate of AFA usage as last year.