Law Firm Growth & Profitability Trends – August 2024
Emerging Trends in August 2024
As we move through the second half of 2024, law firms are experiencing significant growth and facing new challenges. While many law firms are seeing robust growth, the job market for laterals is tightening. See how your firm compares to the market.
Strong Demand and Revenue Growth
Many law firms are seeing robust growth in 2024. Overall demand is up 2.4% compared to 2023. Thomson Reuters identifies several factors that are driving this growth:
- Demand for litigation has increased 3.4%
- Typical for counter-cyclical practices, bankruptcy practices are also performing well – up 2.2%
- Labor and employment is another growing practice, with growth of 2.4%
- Transactional practices are no longer lagging and are ending a 3-year run of no growth
Improved Productivity and Profitability
Productivity, as measured by billable hours, is finally turning positive. Thomson Reuters suggest that the improvement may in part be driven by AI as firms are using AI tools to automate tasks and streamline workflows.
Midsized firms have been more cautious about adopting AI, although an estimated 1 in 5 legal professionals are already using it.
Firms are also seeing impressive financial stats. According to American Lawyer , law firms are on track for one of the strongest years. Several firms report double-digit revenue growth in the first half of 2024.
I know this can be tough with associate salaries sky rocketing, but I’d love to see firms reducing billable hour requirements by leveraging AI tools.
Managing Expenses and Talent
It’s no secret that clients have be more cost conscious and are carefully monitoring their legal spend. Law firms have responded by keeping a close eye on – and reining in – expenses. Thomson Reuters reports that growth in overhead expenses is down from 5.5% in Q1 to 5% while direct expenses grew by 5.3%, down from 5.4% in Q1.
Diversity and Inclusion Progress
Oh boy, this is where I can get a little heated. According to SurePoint’s mid-year legal trends report, ethnically diverse lateral hiring has increased 26%. And women now make up 51.7% of associates. Why do I get heated by this? Because 50% of my UCLA Law graduating class were women, yet almost a quarter of a century later, very few of my women classmates are in leadership roles.
Best Lawyers recent announcement of “Best Lawyers in America” is a good example. Unsurprisingly, women are over half of attorneys practicing family law and are at or approaching a balanced representation in employment and administrative-related practice areas. But, it’s worth knowing that Best Lawyers reports a 10% increase in civil rights, tax, and public finance practice. The implication is that other practice areas, such as M &A, commercial litigation, and corporate law have seen little growth in representation. I expect the same thing could be said of attorneys of color. We still have a way to go.
Shifting Demand for Some Practice Areas
- SurePoint also reports higher attrition rates for real estate and corporate practices.
- After the surge of the pandemic, labor and employment practices have slowed.
- AmLaw 200 firms are showing a 6% increase in headcount.
Lateral Moves
In 2023, new hires outpaced lateral hires but 2024 is trending the opposite way with a 17% increase in lateral hiring in the first half of 2024 over the first six months of 2023.
Firms That Value Client Experience Beat Out the Competition
So why do so few firms have a dedicated process for addressing it?
Let’s face it, whether its driven by AI, Google, AVVO ratings, or even Yelp, law is looking a whole lot more like a retail business and less like a profession. And just like restaurant chains and department stores, clients are ready to leave firms that provide a lackluster experience. The boon to those firms who get client experience right, on the other hand, is huge. (Shameless plug – how to improve your firm’s client experience is the type of challenge my facilitated collaboration sessions can help your firm solve.)
Final Thoughts for What Lies Ahead
Bloomberg Law predicts a “potentially great 2024” for BigLaw. But what about mid-sized firms? Clio reports mid-sized firms are enjoying higher billable hours and increased collections, driven in part by capitalizing on existing work. To maintain momentum, mid-sized firms should also be thinking about how to work more efficiently using AI tools or (my favorite) applying principles of legal project management.
So what does this mean for mid-sized law firms in the rest of 2024 and into 2025? Smart firms will focus on a few key things:
- Staying agile and responsive to shifting demands across practice areas. (We can help you with that too.)
- Taking the time (it’s less than you think) to focus on client experience.
- Using tools, including AI, to streamline workflows.