The Legal Executive Institute recently published this infographic titled “How Big is the U.S. Legal Services Market?” The infographic presented several important data points on the legal industry:
- According to the LEI, the size of the legal market is about $437 billion. Out of this figure, law firms’ total revenue combined account for $276 billion, about 63% of the total legal market. Corporate Legal Departments share the other 37% with $160 billion.
- The law firm market is split: 39.2% are Small Law Firm (1 – 20 attorneys), 26.4% are Mid Size Firms (30 to 175 attorneys) and 34.4% are Large Firms (175+ attorneys).
- Law firm business from Corporate Legal Departments is almost an even split, with 53% of the business going to the Top 200 AM LAW firms, and 47% to firms outside the AM LAW 200. Corporate legal departments are doing more in-house work.
- US is the largest distributor of legal services.
Additional data published by Georgetown Law and Peer Monitor in the 2016 Report on the State of the Legal Market states:
“In what is rapidly becoming the “new normal,” it appears that 2015 will go down as another overall lack-luster year in terms of law firm financial performance. While the picture obviously differs from firm to firm – and a few firms achieved remarkably good results – in the main U.S. law firms continued to experience very sluggish growth in demand, coupled with negative growth in productivity, and continuing downward pressure on rates and realization. Indeed, there is now some evidence of a drop-off in the growth of “worked rates” – i.e., the negotiated rates actually used by firms in work for their clients – which, combined with declining realization, has led to a sharp decline in collected rates.”
The Peer Monitor report also cites flatlined demand in 2015 and decreases in attorney productivity as additional contributors to weak financial performance.
What does all of this mean? One word: competition. Despite growth, the legal industry is heavily saturated, therefore today’s firms need to understand what it takes to remain competitive in today’s market. According to Steve Assie, Director of Proposition Strategy and Acquisition at Thomson Reuters, “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. 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.”
How Traditional Law Practices Can Increase Competitiveness
As Assie stated above, today’s firms will need to shift their approach away from the traditional methodology in order to remain competitive. What does that mean? Here’s our take:
- Focus more on timekeeping accuracy. Billable hours have become a sore spot for clients as they often feel that they are over-billed and that the clock is ticking away their budget. Through contemporaneous time entry, firms can ensure that time entries are as accurate as possible.
- Reduce rejections in the billing process. When a bill is rejected because it does not adhere to billing guidelines, this creates additional strain on internal resources at the firm. Additionally, it also delays payment and compromises client trust. In fact, the Peer Monitor report, October 2015 showed the lowest level of annualized collection rates since February 2011. Real-time compliance ensures that billable time meets billing requirements as time is entered.
- Invest wisely in technology. Choose technology that works the way that your attorneys work with scalability and sustainability in mind. Legacy software systems are impractical and cost-prohibitive. SaaS is the only way to meet the demands of today’s market. The Peer Monitor report illustrates this point with the following statement: “Law firm clients have increasingly demanded more efficiency, predictability, and cost effectiveness in the delivery of the legal services they purchase. In the main, however, law firms have been slow to respond to these demands, often addressing specific problems when raised by their clients but failing to become proactive in implementing the changes needed to genuinely meet their clients’ overall concerns.”
What are your thoughts? Share your insight on how today’s firms can increase competitiveness in the comments section below.