A new report has revealed that close to half of all legal practices are considering expanding into new areas of law, while more than a third believe the outlook for the next 12 months is gloomy.

Macquarie Relationship Banking's 2011 Legal Best Practice Benchmarking Survey found that 45 per cent of law firms are considering diversification of legal practice, with employment law topping the list of possible avenues.

Terry Lyons, head of legal segment at Macquarie Relationship Banking, said it was encouraging to see firms were not remaining static.

"Firms are looking at other avenues of revenue and the focus on employment law seems to suggest that they recognise its economic resilience, with constant legislative change bolstering this practice area through the economic uncertainty of the past few years," he said.

The survey, which included more than 100 legal practices around Australia, also found that 37 per cent of firms believe the outlook for this year is worse than last financial year

"Cautious optimism certainly seems to be the name of the game for legal firms this year. While caution can be a good trait, firms should remember that 70 per cent grew their profit in the past year," he said.

"Given that legal clients have been less active post-GFC and more focused on reducing expenses, this is a great result and something that the industry should be proud of."

Also identified in the report is an apparent gap between the service qualities firms believe are important to their clients and their own service strengths.

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Firms ranked reliability as the primary service quality demanded by clients, but less than half of legal practices felt it was actually one of their strengths.

Firms also rated speed (47 per cent) and being proactive (45 per cent) and as being important to clients, yet only 25 per cent of firms felt they were good at being proactive.

Lyons said that these discrepancies offered innovative firms an opportunity to move ahead.

"Solid client relationships are critical for legal practices, particularly as our survey revealed that 66 per cent of new business enquiries come through existing client repeat business or word-of-mouth referrals," he said.

"Practices looking to differentiate themselves should survey their clients to determine what is really important to them, and make sure that staff prioritise these qualities through all their dealings with clients. This will give these firms a real edge, helping to keep clients onboard and supporting business development."

The report also revealed that 67 per cent of firms are hoping to strengthen their team through recruitment in the next 12 months, with a particular focus on solicitors (67 per cent) and graduates (34 per cent). Only 23 per cent of firms reported being happy with their current team structure, with only 21 per cent of respondents believing technology is too costly to keep up with. Improving team culture was identified as most likely to have a positive impact on a firm over the next 12 months.