In a new graphic, titled “How Big is the US Legal Services Market?” created by Legal Executive Institute, the size of the US legal market is estimated to be about $437 billion currently. This number includes the revenue generated at law firms, legal process outsourcing firms (LPOs) and the budgets allocated to corporate legal departments.
Large law firms are not the only option for corporate legal work. In fact, they are no longer the primary option.
The largest piece of the market is law firms with a total combined revenue of $276 billion. Following law firms, corporate legal departments represent about $160 billion with the remaining $1 billion falling to LPOs. (For corporate legal departments, it is important to understand that this does not represent revenue, but the budget allocated by the corporation that is spent internally and excludes budget spent on outside counsel and non-law firm vendors). The graphic also breaks down the law firm segment into Large, Medium, and Small law firms. “It’s striking how much the large firms earn in revenue,” said Steven Assie, Director of Proposition Strategy and Market Development at Thomson Reuters and one of the creators of the graphic. “A couple hundred large law firms are earning significantly more than six times as many medium size firms.”
…[W]hile the share presently held by LPOs is relatively small, at approximately $1 billion, it is growing at an annual rate of 30%.
The graphic also sheds interesting light on what Corporate legal departments are doing — bringing more and more work in-house (despite the challenges of often having to accomplish more with fewer resources) and assigning more work to LPOs. In fact, as the graphic demonstrates the share of the market which corporate legal departments currently retain “in-house” exceeds 35%; and while the share presently held by LPOs is relatively small, at approximately $1 billion, it is growing at an annual rate of 30%.
As the graphic shows, while the size of the US legal market is strong and robust, there are troubling ongoing trends for traditional law firms that continue the drastically alter that legal landscape. “The challenge for law firms is that corporate law departments are looking to boost cost effectiveness by bringing more work in-house and by using LPOs,” Assie said. “In order to grow their share of the pie, firms are going to have to reverse the trend and take back some of this work, and that will almost certainly require them to makes changes to the way they practice law today.”