Growth Opportunities and Threats in the Legal Industry in 2018
It’s common knowledge in many professional sports that championships are won in the off-season.
How well a team does when the season starts depends pretty much on how well-prepared and ready to win the team is, before the competition even begins
This is no different for any businesses who are looking forward to strong growth and significant business wins in 2018.
If you’re one of these businesses and want to step into 2018 knowing with certainty what to expect from your industry and how to be better prepared to make your mark and win your games, here’s a snapshot of what your playing field looks like…
Growth in the Personal Legal Services industry in Australia
The Personal Legal Services industry covers those legal matters related to individuals – personal injury law, family law, property law, class actions, wills, probates and residential conveyancing.
3 trends in the industry:
- Over the five years through to 2021-22, industry revenue is forecast to grow at an annualised rate of 1.0% to reach $7.5 billion.
- Biggest drivers of growth: The ageing population, boosting demand for wills and estate services and increasing number of divorces.
- Adopting different business models (including alternative business structures) and the acceptance of industry services, such as alternative dispute resolution, is increasing
Industry Revenue – Past Performance and Outlook
The personal legal services industry has experienced a relatively good revenue growth over the last five years, at an annualised rate of 2.9% to reach $7.1billion in 2016-17.
Whilst the revenue growth will continue its upward trend, the anticipated decline in workplace injury incidents and motor vehicle accident numbers, will push the growth rate down to only 1% annualised to reach $7.5 billion. This trend is not the same for all industry players, especially for those providing divorce, inheritance and conveyancing legal services.
EXTERNAL GROWTH DRIVERS
The key external drivers of growth in the personal legal services industry are: number of vehicle accident deaths, work accident rate per 1,000 employees, number of divorces, number of deaths and number of housing transfers.
There is a continuous and consistent decline in the number of vehicle accidents related deaths, as well as work accident injuries leading to fewer disability, superannuation and personal injury claims.
The downward trend of the first two growth drivers is counterbalanced by an increasing number of divorces, which in most cases requires legal advice associated with division of assets and care of children.
The increasing number of deaths will also increase demand for settlement of estates and probate.
The number of housing transfers doesn’t have a uniform trend across the industry, as some local property markets are more active than others.
Current Industry Performance
Demand for personal legal services
The three biggest sectors in the personal legal services industry are property, family and personal injury law, all of which have been driven by steady demand of services in the last 5 years.
Family law services will continue to experience steady demand.
The demand of property legal services is fluctuating due to changes in loan rates, property prices, regulation and number of buyers, local and overseas.
With regard to demand for personal injury legal services, ongoing safety campaigns by Safe Work Australia and higher workplace safety awareness and better risk/injury prevention management, have put pressure on industry revenue growth. This trend has been further accelerated by the declining manufacturing industry in Australia.
Vehicle accidents deaths have also fallen caused by successful anti-drink driving campaigns. Even though the claims have fallen, the related fall in industry revenue has been offset by aggressive marketing campaigns by players like Maurice Blackburn, promoting no-win no-fee personal injury claims model.
Other legal services demand and revenue boosters over the last 5 years have been investor-related class actions, in relation to public company financial disclosure and increasing use of alternative dispute resolutions (ADRs). The ADRs are a fast-growing revenue area in the sector, although it is less profitable, but high volume because of the support of the federal and state government (especially in the area of family law).
Industry profit margins have increased over the period due to strong growth in demand for conveyancing and family law. They have also increased due to larger firms cutting costs and implementing new technology to boost efficiency.
Overseas expansion and using alternative business structures, hasn’t benefited the biggest players in the industry – Slater & Gordon and Shine Lawyers, both experiencing difficulties with their strategic choices for growth.
Over the five years through to 2021-22, industry revenue is forecast to grow at an annualised rate of 1.0% to reach $7.5 billion.
Cases related to wills and estate planning are expected to support industry revenue growth, due to Australia’s ageing population and a rising number of deaths.
The fall in workplace injuries and vehicle accidents will affect companies in this legal space, such as Shine Lawyers. However, they have bigger levers to use to offset this decline in demand for their types of services, such as access to capital for aggressive branding and marketing, acquisition of other industry players to diversify their services portfolio, attracting high calibre staff and investing in better client service.
Even without having their capital potential, you too can use the same levers for growth, just use what you have in a smarter way – here is how to use branding and advertising, team building and partner and client management to grow your business.
Class actions and family law are anticipated to be growth areas for industry players over the next five years. As class actions can be significant cases, sometimes involving hundreds of individuals, larger law firms with established expertise and reputation for success tend to benefit from these cases.
Industry solicitors are increasingly looking to expand into family law. The number of divorces is forecast to rise only slightly over the five years through to 2021-22, although rising case complexity and more appeals are anticipated to increase demand for legal services in this area.
How is this affecting your business? How are you planning to use the opportunities and mitigate the threats in your industry?
There are different business strategies you can adopt for long-term growth. – They will be discussed in part B, coming soon.
Here’s a preview:
To compete more successfully against the big brands in the industry, (especially in the personal injury space) small practices need adopt business models similar to GP practices, where they act as a first point of call to other legal services and leverage their developed personal relationships with their clients.
Providing “augmented” client service doesn’t have to come at a cost – you can use a semi-automated service delivery model.
Some form of branding and promotion still need to take place as people are more likely to trust their legal matters to a recognised brand. Check your branding and marketing options.
If you are a conveyancing firm you will not be too threatened by big brands, as they are more attracted to the bigger profit margins in the personal injuries legal services space.
Have a look at other tools and drivers you can use for growth in 2018:
Key Success Factors for Growth
IBISWorld identifies 250 Key Success Factors for a business. Some of the more important for your industry are:
- Experienced, highly trained work force: Experienced and knowledgeable staff are vital for superior service and maintaining the integrity of your brand; have a strategy of recruitment and retention, which doesn’t have to be costly or rely on external help.
- Access to niche markets: This doesn’t necessarily mean having a single service – it does mean targeting niche market (young families, or immigrants, or retired people, etc) as it increases the profitability of your growth efforts through cost-effective advertising and impacting branding
- Having a high prior success rate: Firms that have a high success rate attract more clients and are able to charge more for services. This message and success track record needs to be articulated in your promotions, including on your website.
- Ability to effectively communicate and negotiate: Strong communication skills are necessary to make a strong case in court. When making a settlement outside of court, negotiation skills are crucial.
- Having a good reputation: A strong reputation in your market makes it easier to gain new business as well as charge higher fees for your services. However, even if you are new to the market, if you’ve relocated from overseas, or are just starting, you can create a strong brand from the get go, which will make your entry into the market smoother and faster.
The original research and analysis has been conducted and published by IBISWorld Australia – www.ibisworld.com.au
Building and growing a professional services business can be harder than growing a “passion” service/product business. In other words, attracting clients who are eager to buy accounting, disputes resolution, financial planning etc services is different to attracting customers eager to buy new cars, shoes or golf memberships.
To grow your business (be it sales, profits and/or assets) you rely on people and businesses to hand to you not just their money, but also their trust (open their business or personal lives) so that you can help them.
To grow, you need to be able to sell more of what you offer, which is largely intangible to an average client, who also needs to trust you implicitly, before they get to know you and your team.
Given the involved nature of the relationship between a professional service business and its client base, it’s not unusual to have some barriers and challenges to growing.
For this reason, we’ve put together a guide to growth specifically for professional service businesses, to provide answers and a choice of strategies for growth in 2018.