The top-line strength of 2018 continued to build in our nine-month results for the law firm industry. Revenue growth accelerated and continued to be fueled by inventory buildup that is being replenished almost as quickly as it’s collected. Further, growth in 2018 has been more balanced than any year in recent memory as demand has added lift to billing rate increases—the perennial driver of revenue growth in the extended post-recession period.
While we remain confident that revenue results will remain strong through the end of the year, we see some challenge to profit growth for 2018. Expense growth, which was already relatively high at the midpoint of the year, moved very close to revenue growth at nine months, threatening to place pressure on law firm margins by year-end. In fact, almost half of all participants have experienced margin compression thus far in 2018, despite stellar revenue results. While this will most certainly be a year of unprecedented industry growth since the recession—especially if firms focus heavily on collections—it may also be a year in which firms recalibrate their budgets to ensure that they grow profitably.
