While the overall large law firm market experienced generally flat growth through the midpoint of 2017, some law firms notably outperformed their peers. A new report from Thomson Reuters’ Legal Executive Institute suggests that investments in areas such as business development, marketing and technology may be a key factor defining these higher-performing firms.
The 2017 State of the Legal Market Midyear Report identified a population of firms with market-leading growth in overall profits, revenue per lawyer and profit margin, using Peer Monitor data from 165 U.S.-based large law firms. The population of higher-performing firms also had above-average growth in demand and fees worked.
The highest-performing quartile of firms increased their marketing and business development expenses by an average of 4.6% last year, compared with only 1.8% for the lowest-performing quartile, the report shows. Similarly, higher-performing firms grew their per-lawyer investment in technology by 3.2%, while the lowest-performing firms grew technology spending by only 1.2%.
As part of this new report, a survey of top law firm leaders found that 80% of respondents anticipate marketing and business development being a major priority for their firms this year, suggesting that more firms are looking to adopt a mindset similar to that of the highest-performing firms.
The report noted that overall market demand growth was only slightly positive for the first six months of 2017, with billable hours rising a mere 0.1%. Law firms have traditionally driven much of their growth through rate increases. That may be an increasingly risky strategy, however. Despite some recent strengthening in rates, realizations continue to be at near-record low levels. Firms last year collected an average of only 82.5 cents for every dollar of their standard rates. According to Peer Monitor data, average write-downs of worked rates increased from 7.8% in Q2 2016 to 8.4% in Q2 2017 as clients continue to push for discounts and write-downs.
For more information on Peer Monitor, visit legalsolutions.com/peer-monitor.