The survey also finds that firms are lagging in efforts to promote women to the equity partnership and less-than-excited to discuss diversity, equity, and inclusion (DEI) policies or pro bono work.
Although the data includes results from 15 international firms with robust footprints in Germany, it delves deeply into the business and operational strategies of more than 300 midsize and smaller domestic firms, most with fewer than 400 lawyers. (Ninety-five percent of the firms surveyed fall into this category.) Overall, 316 firms from 29 regional markets, including Munich, Hamburg, Frankfurt, Berlin, Dusseldorf, and Cologne, participated in the survey.
The results provide unique insights into firms’ revenue priorities, staffing, marketing, and fee arrangements, as well as their approaches to DEI, pro bono, and environmental, social, and governance policies.
Revenue Drivers
We asked firms to provide data on how their work is distributed. What percentage of their annual revenue in Germany was derived from serving clients in the city where they are based? How much comes from providing services to clients in their federal state (outside their home metro area)? What percentage was obtained serving clients across the nation, or the European Union, or globally? Firms could select all of the categories that applied.
For the typical German firm, the results showed that the distribution of clients and revenue is fairly even across categories—with a few notable exceptions.
Based upon our survey data, the average midsize or larger firm derives the biggest share of its annual revenue—more than one-third—from serving clients nationwide across Germany in multiple cities and federal states. Just under 20% of revenue comes from work for regional clients, those within the federal state where the firm is headquartered, but outside the metropolitan area where the head office is located. Global clients and local clients rooted in the firm’s headquarters city each account for about 16% of revenue, and clients with legal needs across EU states generated about 15% of revenue for midsize and larger firms.
Perhaps unsurprisingly, small firms (those with less than 20 lawyers) saw a larger proportion of their revenues coming from national, regional, and local clients rather than EU or global clients. Just like their larger-firm brethren, small firms derived one-third of their revenue from work for nationwide clients operating across multiple cities and federal states. Regional work for clients within the same federal state and local clients in the firm’s headquarters city together generated 42% of small firm revenue. Pan-EU clients and global clients accounted for a quarter of revenue on average.
Where Is the Work?
The national and regional focus of German firms is also evident in answers to the question “What’s the jurisdiction of your legal work?” Ninety-three percent of firms surveyed said half or more of their legal work was conducted inside Germany. Some 30% said they exclusively worked in the German market.
Among smaller firms, one-third said they were doing 100% of their work inside Germany. About one-quarter of larger firms said the same. Among both large and small firms, the most common arrangement was to spend 75% to 99% of their time on German legal work, with the balance spent on foreign clients. This was true of 41% of small and 43% of larger firms.
Most of the firms surveyed also said the bulk of their offices were inside the country. Nine out of 10 said half or more of their global offices were in Germany. Of the nearly 250 firms that provided a breakdown of offices, only 15 reported having more than one-third of their office locations outside the country.
Firms reported locations in 29 German cities. Munich was the most common location, with 66 firms reporting offices there. Hamburg (42 firms), Frankfurt (39), Berlin (33), Düsseldorf (30), Cologne (19), and Stuttgart (10) followed.
The Pitch to Clients
No matter their location or client focus, firms across the spectrum said they have plenty of capacity for additional work. Just under 90% of firms said they are hunting for new clients. And only one of the firms replying “no” to this question had more than 20 lawyers.
Nonetheless, marketing budgets at many firms were flat. Nearly 60% said their budget remained the same as the prior fiscal year—a fact that was particularly true at smaller firms, where 62% said their budgets held steady, compared to 47% of larger firms.
The survey also asks firms an open-ended question about their strategy for distinguishing themselves from their competition. Many of the firms said they are focusing on specialization and deep expertise in niche areas, such as white-collar crime, intellectual property, patent litigation, and corporate law in their pitch to clients. They’re also emphasizing experience, touting a partner-led approach to work that assures clients senior lawyers are directly involved in their matters.
Among the firms in our survey, many are catering specifically to medium-sized businesses or focusing on industries with highly specialized needs, such as the entertainment, healthcare, and construction sectors. They often used terms like "personalized," "efficient," and "pragmatic" to describe their approach. And a few firms touted their commitment to innovation, such as embracing legal technology, AI, and sustainable practices (more on this later), positioning themselves as forward-thinking alternatives to traditional law firms.
Favored Fee Arrangements
We also queried firms about their approach to value, questioning them about the prevalence of alternative fee arrangements (AFAs) and asking a breakdown of the kinds of fee arrangements they are favoring.
Our survey found that German firms have wholeheartedly embraced AFAs. Nearly 9 out of 10 smaller firms (less than 20 lawyers) and 8 out of 10 larger firms (20 or more lawyers) said they offer alternative billing arrangements to their clients.
Fixed fees, blended hourly rates, capped fees, and discounts for large numbers of billable hours are the most common types of alternative fee arrangements in the German market. More than 60% of firms said they offer these AFAs to clients. Flat fees, retainers, and event-based fees are used by more than a quarter of firms. The following is a breakdown of the types of AFAs German firms are using and the percentage of firms offering these arrangements:
- Fixed fees, 76%
- Blended hourly rates, 72%
- Capped fees, 65%
- Discount for large number of billable hours, 61%
- Flat fees, 47%
- Retainers, 36%
- Event or task-based fees, 28%
- Hybrid fees, 17%
- Value-based pricing, 16%
- Contingency fees, 14%
- Collared fees, 5%
- Subscription pricing, 4%
- License fees, 2%
- Other AFAs, 3%
How Firms Are Staffed
To meet client demand, German firms are carrying significant non-lawyer overhead. Overall, the firms we surveyed employed slightly more than 10,000 full-time equivalents (FTEs). Staff in non-legal positions comprised about 30% of those. Paralegals represented 14% of FTEs.
The larger the firm, the greater the percentage of non-lawyer staff. Some 52% of employees at firms with more than 20 lawyers are in non-lawyer positions. That compares to 40% at firms with fewer than 20 lawyers.
This is a departure from firms in other major legal markets. In the United States and Canada, for instance, percentages of non-lawyer staff decline as law firms grow larger. Firms in those markets with 20 or more lawyers have a makeup of closer to 40% non-lawyer. At smaller firms, non-lawyer staff can run as high as 50%.
At the average German firm, lawyers accounted for 53% of FTEs. Some 17% were equity partners, 6% were salaried or fixed-draw partners, 9% served as special counsel or senior associates, and 21% were associates/other lawyers.
The largest firms had the tightest equity partner tiers. Just 11% of lawyers at firms with 150-499 lawyers had equity partner status, compared to 17% at firms with 50-149 lawyers, and 18% at firms with 20-49 lawyers. Just over one-quarter of lawyers at small and solo firms (1-19 lawyers) were equity partners.
Diversity, Equity and Inclusion
Only 178 of the 317 firms—or just over half—of the firms we surveyed answered the question “Which, if any, diversity-related positions, committees or programs does your firm have?” And of those who did respond, more than half (56%) selected the option, “prefer not to say.”
Politics and privacy concerns may be driving reluctance by German firms to discuss their diversity efforts. Bloomberg reported last year, “While personnel and diversity questionnaires have been widely adopted in the U.S. and many parts of Europe, Germany’s strict data protection laws and strong bias toward privacy have made such efforts a challenge. The recent rise of the far-right AfD party has also discouraged some people from wanting to share personal information for fear it could be exploited should the party take power.”
Among the 79 firms that answered the question, about half said they had a formal diversity program. One-third had a diversity committee in place or were conducting a diversity awareness program. One-fifth had instituted a community outreach program. Among the more than 300 firms we surveyed, only 12 said they had a full-time diversity professional or DEI officer.
Smaller firms were taking a far more limited approach to DEI. Just 43% said their management teams were making diversity a key principle at the firm, compared to 61% of larger and midsize firms. Larger firms were also more likely to make diversity a key part of their recruiting programs or to have won awards for their diversity efforts over the past two years.
Women in the Partnership
While women make up 51% of the associate ranks at the German firms surveyed, gender diversity plummets among more senior law firm roles. And as women climb the law firm ladder, they are more likely to be assigned roles outside the partnership, the data shows.
Among all partners, equity or nonequity, just 19% were women, according to the survey. And the numbers declined even further in the equity partnership. Only 15% of equity partners at the German firms surveyed were women. While women made up a significantly higher percentage of salaried or fixed-draw partners (27%), fewer of these positions were available. Firms reported three times more equity partner slots than salaried or fixed-draw positions. Women also occupied 42% of the special counsel or senior associate positions.
In other countries with large legal markets, women appear to be making more progress. For instance, according to the UK’s Solicitors Regulation Authority, 32% of equity partners in England and Wales are women. In the United States, the American Bar Association has reported that 28% of all partners and 24% of equity partner roles are held by women.
A Dearth of Pro Bono
How prevalent are pro bono programs at German-based firms? Our survey finds that only one-quarter of firms have instituted a formal pro bono program.
Fifty percent of the firms surveyed said they do not have a program—and the number grows even larger when those who preferred not to answer the question are factored in. A few firms, about 5%, have established a formal community service program. In a report a few years ago, the Pro Bono Institute and Latham & Watkins analyzed the state of pro bono work in Germany. While the report noted that, “generally, public opinion in Germany considers the provision of pro bono legal services as a positive recent development,” it found that “legal and cultural obstacles to pro bono work still exist.”
Pro bono work, the report noted, has emerged in Germany during the last 30 years as regional and international law firms brought institutional pro bono programs to the market. “Through establishing associations such as the Probono e.V., founding multiple university law clinics, and the influence of Anglo-American law firms, pro bono work in the German legal sector has gained much more attention and support,” the report said.
Still, pro bono legal services are needed to help individuals and businesses with civil law, refugee and asylum law, labor law, data protection law, trademark law, labeling rules, social franchising, web presence, tax law, and copyright law. “Major unmet legal needs are revealed, for example, when looking at low income individuals, like single parents, who cannot afford legal costs insurance but are not ‘sufficiently poor’ to qualify for assistance under [Germany’s] Legal Aid Scheme and thus run the risk of being deprived of their rights,” Latham and the Pro Bono Institute wrote.
ESG Efforts
Along with diversity and pro bono issues, the survey asked German firms about their environmental, social, and governance (ESG) policies. Germany and the European Union have implemented mandatory ESG reporting for businesses of certain sizes. The 2023 Supply Chain Act, for instance, requires companies based in Germany with more than 1,000 employees after Jan. 1, 2024, to report on and address human rights and environmental risks in their supply chains.
In our survey, law firms were specifically asked to select, “Which if any ESG-related positions, committees or programs does your firm have?” Only fifty-six firms said they had a program.
Among those who did, commitments to sustainability (or carbon neutrality) were the most common ESG effort, with 63% of the firms saying they had such a program. Just over half of those firms have an ESG strategy, 45% engage in responsible procurement, and 41% have a dedicated team that is responsible for ESG commitments.
Far less common are ESG-related investments (16% of firms with environmental, social, and governance programs) and reconciliation action plans (13%), which are structured commitments to build relationships and create opportunities for indigenous peoples.
The Challenges Ahead
In the end, the survey shows a dynamic German market whose smaller and midsize firms are sharpening their focus on driving revenue from domestic engagements, whether at the regional or national level. Firms appear willing to embrace alternative fee arrangements and many are pitching themselves as client-centered and able to offer specialized counsel where needed.
At the same time, women are lagging behind in equity partnerships, and many firms appear to be sidestepping key issues like diversity, equity, and inclusion, pro bono work, and ESG initiatives, the survey results show. How firms navigate these challenges—without losing focus on their domestic business priorities or alienating clients—will likely shape their success in the years ahead.
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David L. Brown is a legal affairs writer and consultant who has served as head of editorial at ALM Media, editor-in-chief of The National Law Journal and Legal Times, and executive editor of The American Lawyer. He consults on thought leadership strategy and creates in-depth content for legal industry clients and works closely with Best Law Firms as a senior content consultant.
