Law firms had a great 2018: Demand was up, as were top-line gross revenues, and partners were busy. But those successes have made law firms complacent about what could matter most in the long term, according to Altman Weil’s annual Law Firms in Transition Survey.
Firms have stopped aggressively pushing for the increasingly cost-effective and valuable services clients are still demanding, according to survey co-author Eric Seeger. And down the road, firms that deescalate progress in legal operations could be in hot water in an increasingly competitive market.
“People are happy because times are good right now,” said Seeger. “But clients still want it better, faster and cheaper. So when the economy turns, as it always will, firms need to be in a position to demonstrate that they are focused on that and can deliver to clients’ expectations.”
Altman surveyed 810 managing partners and chairs from 362 law firms for this study. Forty-six percent of the Am Law 200 participated.
On almost all fronts, 2018 was a stellar year for law firms, according to the study. The vast majority of law firms—78%—reported higher year-over-year gross revenues, up 10 percentage points over 2017. Additionally, 77% of firms reported higher revenue per lawyer and 72% of firms said profits per partner rose as well. Higher demand brought higher billing rates, with 61% of firms reporting “aggressive” rate growth in 2018.
“Lawyers are busier. Firms raised their rates more aggressively than in previous years and the clients paid the increases,” wrote Seeger and co-author Tom Clay.
But a good year does not fundamentally alter the economics of the legal market. Seeger and Clay found that firms have relaxed in their efforts to improve legal and work processes and lower costs. Regardless of a recession, Seeger said that firms must continue to differentiate themselves from the pack or risk losing out in the long term.
“It’s still a highly competitive market. Clients are very aware that they have choices,” said Seeger. “We are advising firms to not get complacent but to focus on long-term stability and competitiveness.”
The study found that only 54% of law firm leaders say that their firm’s urgency to change is higher now than it was two years ago. And only 22% of firms made a serious effort to change work processes.
The authors wrote that it is imperative that law firms continue to value change. Firms should take a look at their legal operations—pricing, staffing, technology utilization and knowledge management—to appease clients who want to see lower legal costs, they said. Leadership development and collaboration can help reduce a culture of feet-dragging.
“As has been the case for years, law firms’ success will be driven by their ability to meet the changing requirements of the marketplace,” the authors wrote. “Firms that can craft smart, client-focused strategies and execute on them rapidly are likely to achieve competitive advantages.”