Law firms will need to adjust staffing and billing approaches to thrive in what has become a buyer’s market for legal services, according a new report analyzing the state of client demand, firm finances and shifts in the legal market since 2009.
The report was produced by Georgetown Law's Center on Ethics and the Legal Profession and the Thomson Reuters Institute, which shares the same parent company as Reuters.
Overall average demand for legal services last year grew just 1.1% for the 179 U.S.-based law firms surveyed, the report said, with midsize firms fairing better than firms in the 100 top-grossing segment.
The authors warned that law firms can no longer depend on transactional practices to prop them up, as many did throughout the 2010s when low interest rates fueled an increase in mergers and acquisitions and firms staffed up those practices in response.
“The fundamental shifts in the market that we have seen over the last 15 years are really coming home to roost,” said lead author James Jones, a senior fellow at the Georgetown center.
Counter-cyclical practices including litigation and bankruptcy saw demand growth in 2023, while transactional demand continued to slow, according to the report.
Billing rates on paper increased 6%, the survey showed, but the amount firms actually charged clients declined, as did the proportion of billings that firms managed to collect. Average overhead expenses climbed by 7.1% while direct expenses increased more than 6% — a figure that does not include a recent wave of associate raises that will be felt next year.
Firms increasingly took different approaches to staffing, meanwhile, with midsized firms bulking up their associate ranks far more than their larger counterparts.
Cost-conscious clients are increasingly moving work “down market” to lower prices firms, the report said.
The rise of generative artificial intelligence also promises major shifts that could affect staffing and profitability, though it remains unclear how that technology will ripple through the legal industry, the authors wrote.
Clients could use AI to perform more work in house, or it could enhance efficiency and profits for both clients and firms, the report said.
“For 2024, I think it’s going to be a fairly volatile year,” said William Josten, manager for enterprise legal content at the Thomson Reuters Institute, noting that election years are often unpredictable. “I don’t know that we can count on there being another ‘stable year’ for several years to come.”
Read more:
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Law firms saw rising demand in Q2, report says
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