November 10, 2022
2022 Report on the State of U.S. Small Law Firms Finds Optimism Despite Challenges
Small law firms expect growth over the next 12 months and next three years
MINNEAPOLIS-ST. PAUL, November 10, 2022 – Small law firms are increasingly optimistic about their growth outlook, according to the 2022 Report on the State of U.S. Small Law Firms from Thomson Reuters, acknowledging numerous challenges as well as new opportunities.
Expectations for growth by small law firm lawyers are higher across the board this year. Nearly six in 10 lawyers say they expect growth over the next 12 months in revenues per lawyer, billable hours, and profits per lawyer, representing a more positive outlook than in the previous year’s report. Small firm lawyers also expect high-to-moderate growth to continue over the next three years.
Small firm lawyers feel that they are building on an already strong base. Ninety percent of small firm lawyers rate their firm as either successful or very successful, with 26% rating their firm as very successful and 64% as successful.
Even with their optimistic outlook, small law firms face several challenges. Lawyers rate administrative tasks that take time away from practicing law as their number-one challenge, as they have for the past several years. Small firm lawyers now say they spend only 56% of their time – barely half of their day – practicing law, down slightly from two years ago.
Other top challenges are acquiring new client business and cost controls.
The report notes encouraging signs of small firms’ ability to address some of their most significant challenges. In 2020, getting paid by clients was rated as a significant or moderate challenge by nearly two-thirds (64%) of lawyers. In response, many firms took steps such as increasing retainers; improving payment collections; and accepting electronic payments, such as ACH payments and debit or credit cards. In 2022, only 54% of small firm lawyers rated getting paid by clients as a significant or moderate challenge, and it dropped from the fourth-highest challenge to a tie for eighth.
Small firm lawyers consider their primary competition to be law firms of similar size. Significantly larger law firms competing for the same clients are the second-most commonly mentioned competitive threat. The report, however, notes this presents opportunities as clients of larger firms may increasingly seek more cost-effective alternatives for quality legal work.
In addition, competition remains strong from “do-it-yourself” legal websites that provide legal information and forms. Small law firms will be challenged to improve efficiency and customer service to compete with these offerings.
“Small law firms are increasingly positive about their ability to maintain or even accelerate growth,” said Mark Haddad, general manager, Small Law Firm business, Thomson Reuters. “The firms have emerged from the difficulties of the last few years stronger than ever. They are also aware that significant challenges remain, as market conditions are fluid and dynamic. But many of those challenges may also present opportunities for small firms to win additional market share from larger firms as they emphasize their cost-effectiveness and ability to provide high-quality legal services affordably, paired with excellent client service.”
The 2022 Report on the State of U.S. Small Law Firms can be downloaded here.
Thomson Reuters is a leading provider of business information services. Our products include highly specialized information-enabled software and tools for legal, tax, accounting and compliance professionals combined with the world’s most global news service – Reuters. For more information on Thomson Reuters, visit tr.com and for the latest world news, reuters.com.