You already know what you think of the state of the legal market today. But, you probably recognize there are benefits to learning what others think too. Since our legal clients are busy people, we’ve captured the 2018 Report on the State of the Law Market highlights. This blog will get you up to speed quickly.
#1 Demand Growth was Essentially Flat
Continuing a pattern seen over the past seven years (with the exception of a brief drop in 2013), growth in demand for law firm services has remained relatively constant. The report authors noted, “with only modest exceptions, U.S. law firms have on average continued to see very sluggish growth in demand for their services, continuing decline in productivity, relatively modest increases in rates, continuing downward pressure on realization, and some upward pressure on direct expenses.”
The good news? If you’re an Am Law 100 firm you likely “significantly outpaced” both Am Law Second 100 and Midsize firms in key indicators such as percentage growth in demand, worked rates, fees worked, overall revenues, and cash collections.
#2 Corporate Practice Saw Positive Growth
Looking at demand growth by practice, the report notes slightly positive shifts in:
- Corporate practices (1.0%, proportion of all activity 24%)
- Tax (0.2%, proportion 3%)
- IP litigation (0.7%, proportion 4%)
While there were negative numbers from 2016 to 2017 in all other fields, particularly noting drops in:
- Bankruptcy (-3.9%, proportion 2%)
- Real estate (-1.0%, proportion 7%)
- Litigation (-1.3%, proportion 30%)
- Labor/employment (-0.5%, proportion 10%)
#3 Productivity Continues to Fall
Negative growth in productivity has persisted for several years with “an overall downward trend” noted across all categories of timekeepers except associates. The report found that “for all lawyers, the current level of billable worked hours per month is some 13 total hours below the level at the beginning of 2007″, costing firms about $74,100 per lawyer per year.
#4 Expense Growth Remains Moderate
In 2017, firms experienced “modest overall growth in direct expenses, attributable primarily to the bump-up in associate compensation, especially among Am Law 100 firms.” Yet, there was also “a modest downturn in the growth rate of indirect expenses.”
The researchers took this as a good indicator that firms have been, since 2012, working harder to keep expenses at more sustainable levels.
#5 Profit Margins Remain Flat
Although firms would surely like to see a repeat of the spike in profit margins of 2011, the trend has remained slightly downward over the past decade. “Law firm profit margins on average across the market were essentially flat during 2017,” per the report.
Ultimately, in interpreting the numbers, the researchers state, “the market for law firm services is not as healthy as it may appear on the surface.” They added, “what is becoming increasingly clear is that the market in which law firms are required to operate today may in reality be quite different from the one that most law firm partners have fixed in their minds.”
Interested in reading more in-depth what the researchers at Georgetown Law’s Center for the Study of the Legal Profession and Thomson Reuters Legal Executive Institute and Peer Monitor discovered? Download the full report here.
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