The Lawyer reported last Friday, in Osborne Clarke’s PEP rises on flat turnover figure, that Integreon middle office outsourcing client Osborne Clarke reported significantly increased profit per equity partner despite almost flat revenue.  The article notes one of the reasons: “The firm has also saved money through its continuing relationship with legal process outsourcer Integreon. The £50m deal struck last year saw around 75 support staff transfer to the outsourcing provider (2 February 2009).”

We are certainly pleased – but not surprised – that we are helping our client improve profitability.  Back in November 2008, when it was just becoming apparent how bad the downturn was for law firms, I wrote here Controlling Cost to Increase Profits.  In that post, I argued that the old adage ‘the only way to improve law firm profit is to grow revenue’ was no longer true.

That reducing overhead cost can move the profit dial should not be a surprise.  In the US, the median overhead per AmLaw 100 lawyer in 2009 was $206,000.  Compare that to almost any other business, including other high end professional services, and it seems clear that savings are not just possible but easy.  (See my May 2009 personal blog post Cost Control as Part of AmLaw 200 Turnaround Strategies for my assumptions to calculate median overhead.)

Of course, by definition, one-half of firms are above the median.  Firms that could bring their overhead down to the median could increase profits by anywhere from a couple percent to over 20%.   That conclusion is admittedly weak because it mixes high-cost NYC firms with lower-cost-base Midwestern and Southern firms.  Yet the point still stands: reducing overhead can make a big difference.

As firms consider how to reduce overhead, they need to keep in mind that legal outsourcing is not just about lower cost labor.  While ‘labor cost arbitrage’ can indeed save, the process improvements are as, if not more, important.