Profitability and Growth
The 21 firms in the 2013 Benchmarking Lite report reported a median increase of 7.9% in revenue compared to the previous financial year. Larger firms showed only a 0.1% increase.
Annual growth rates for the Benchmarking Lite firms were strong between Q2 and Q4 2012 but have slowed down in the first half of 2013. Revenue for the 4 quarters to June 2013 was 1.1% higher than the 4 quarters to June 2012.
The average profit margin improved from 10.5% in the previous year to 14.3% in this year’s report. Larger firms in the main Benchmarking project showed a drop in margin from 6.8% to 6.0%.
The average debt collection period for Benchmarking Lite firms improved to 85 days compared to 90 days in the previous year. Debtors over 90 days old were equivalent to 21 days sales for Lite firms compared to just 12 days for Larger firms. Lite firms reported that a third of all payments took longer to be paid than the contract terms. Lite firms wait 60 days past the due date before sending pre-action letters. There is plenty of scope for improvement in credit control.
Fee earners’ costs accounted for 54.3% of revenue, significantly better than the average for Larger firms (58.5%). Support staff costs averaged only 5.2%, low by the standards of Larger firms, although the latter do employ more specialist IT, HR and Finance and Marketing Staff.
Benchmarking Lite Companies were more successful this year in controlling overheads; the average overhead cost ratios fell from 23.5% to 20.5%.
Revenue per Fee Earner averaged £78,480, which was just 0.2% higher than in the 2012 report. The average for the Larger firms was £83,200.
Total fee income per project hour (not just hourly charged work) is more important than the number of hours booked to projects in explaining revenue per fee earner. The Benchmarking Lite average was £64.4 per hour
The level of revenue earned per £1 of employee costs (including directors’/partners’ salaries) is a key factor in explaining the difference in firms’ profit margins.
Firms in this project averaged £1.60 of revenue per £1 of employee cost, which was significantly better than the £1.50 achieved by Larger firms
The total number of employees including contract staff increased by 8.3% during the course of the year. The number of fee earners increased by 8.7% but support staff were only 2.2% higher
The success rate for competitive tendering of 44% was down by 2% points on the previous year, the Larger firms’ success rate fell by 5% points to 43%.
Including the estimated cost of fee earners’ time, investment in bidding and marketing averaged 2.3% of revenue, higher than the previous year but less than half the average for Larger Firms.
The average order book was equivalent to 7.0 months work, which was an improvement of 20% from the previous year.