Beyond Profits Per Partner: The Real Indicator of a Law Firm’s Health

When partners evaluate potential lateral moves, one number tends to dominate the conversation: profits per partner (PPP).

It is easy to see why. It is the headline metric, it signals financial strength, and it provides a simple point of comparison across firms. But while PPP offers a quick snapshot of profitability, it rarely tells the full story of a firm’s long term health.

In many cases, the more revealing figure is share or unit value growth, a metric that reflects how the firm’s equity has appreciated over time.

Why PPP Can Be Misleading

PPP captures a single moment in time. It can be influenced by short term management decisions that make the firm appear more profitable without necessarily improving its underlying performance.

A firm can increase PPP by:
• Reducing the size of its equity partnership
• Cutting investment in infrastructure, technology, or training
• Trimming expenses or deferring costs to future periods

These strategies might boost short term results, but they do not necessarily indicate a thriving or well managed platform. In some cases, they can mask deeper issues such as stagnating revenue growth, partner dissatisfaction, or over reliance on a few rainmakers.

Why Share or Unit Value Growth Matters

Share or unit value growth, by contrast, provides a window into the long term trajectory of a firm. If the value of equity has increased steadily over time, it usually signals:
• Sustained profitability, driven by genuine revenue growth
• Reinvestment in talent, systems, and strategic initiatives
• Strong financial discipline, ensuring the firm’s balance sheet remains healthy

This trend reflects whether a firm is building real value for its partners, not just distributing short term profits.

When new partners are buying in at higher valuations than previous years, it is a positive sign that the market believes in the firm’s future. When buy ins start falling, it can suggest the opposite, declining confidence or a firm struggling to maintain momentum.

The Questions Every Partner Should Ask

Before committing to a move, it is worth looking beyond PPP and asking a few key questions:

1. Has the firm’s share or unit value been trending upward over time?

2. Are new partners buying in at higher or lower valuations than before?

3. What does that say about the firm’s long term stability and strategy?

These are not always easy questions to answer, but they can provide critical insight into whether you are joining a platform that is growing strategically or simply coasting on past success.

The Bottom Line

Profits per partner will always attract attention, and it remains an important indicator. But for partners assessing potential lateral opportunities, it should not be the only metric in focus.

Understanding a firm’s share or unit value growth adds a layer of perspective that can make all the difference between joining a firm that is thriving and one that is quietly contracting.

Sometimes the real story is not in the headline number, but in the trend behind it.