What makes some law firms more profitable, more cost-effective, and more favored by clients? And more importantly, how do they keep it going for so long?
The legal market has long been aware of a tranche of law firms that more often than not outperform their peers in key financial metrics and critical issues of client satisfaction and lawyer retention. More importantly, how do these same firms seem to reach this level of superior performance, year after year, despite their size of place within the market?
To dig deeper into this question, the Thomson Reuters Institute has released its eighth iteration of the Dynamic Law Firms Report, aiming to identify the strategies and behaviors that contribute to market-leading growth among certain law firms. This year’s report takes a longer-term perspective, analyzing a 10-year period to identify sustained strategies and challenges faced by law firms in their struggle not just for short-term gains but also long-term success.
Key findings from the report include the significance of total billable hours, a shift towards transactional practices, the importance of rate and realization balances, the need to protect lawyer productivity, and the impact of investment choices.
The methodology of the report involved a slight change from previous editions as well. Instead of a three-year snapshot, a 10-year window was used to analyze law firm metrics, focusing on compound annual growth rates (CAGR) of revenue per lawyer (RPL) and profit per lawyer (PPL).
The top 25% of firms with the highest CAGR in both RPL and PPL were identified as Dynamic law firms, while the lowest 25% were classified as Static law firms. This methodology allowed for a comparison between these populations and the average law firm’s performance since the market fully recovered from the effects of the Global Financial Crisis in 2013. While the report primarily draws information from Thomson Reuters Financial Insights, it also draws insights from additional research data from Thomson Reuters Market Insights, such as more than 2,000 interviews that were conducted with corporate general counsel on a global level.
The Dynamic firms in this iteration managed an impressive compound annual growth rate of 3.9% in revenue per lawyer, or the equivalent of 3.9% growth year-after-year over the course of a decade. In comparison to the 2.6% CAGR of the average law firm, the Dynamic subset’s results are clearly impressive.
Yet, it is in profit per Lawyer that the Dynamic law firms proved their mettle, outstripping the average firms’ 2.5% CAGR with an awesome 5.7% year-after-year march, outperforming the average firm in every year since 2014. The report highlights how these Dynamic law firms have employed a multitude of ways to enhance growth prospects as well as analyzing the ability of these firms to adapt and respond to changes in the legal market in order to remain successful.
Finally, the Dynamic Law Firms Report offers valuable insights into the strategies and behaviors that contribute to such market-leading growth. By understanding these findings and applying the suggested lessons, law firm leaders can enhance their firm’s growth prospects and effectively respond to evolving market dynamics.
The report’s emphasis is on fostering agility, making strategic investments, adapting to changing market demands, and prioritizing client-centric approaches — all valuable lessons for law firm leaders of any sized firm.
You can download a full copy of the Thomson Reuters Institute’s “Dynamic Law Firms Report” by filling out the form below: