Law Firm Recovery Continues: Takeaways from Q2 2023 Thomson Reuters Law Firm Financial Index
The strong start for the law firm market in 2023 continued in the second quarter with robust rate growth and demand up for the second consecutive quarter. These are among the findings of the Q2 2023 Thomson Reuters Law Firm Financial Index (LFFI) powered by Financial Insights.
Legal Current highlights top takeaways from the report, which explored how strong demand and rate growth contributed to better law firm financial performance in Q2.
- Counter-cyclical practices are driving growth. Demand for law firm services jumped by an average of 1.5%, a marked acceleration from the 0.1% gain in the first quarter. Meanwhile, average worked rates surged by 5.9% – the highest mark in more than a decade. The demand growth was largely fueled by counter-cyclical practices, including bankruptcy and labor & employment. In addition, litigation work was up a solid 4.0%. Transactional practices were mixed, with corporate work up by 0.1% while tax and real estate work declined.
- The rise in fees worked is another positive sign. A strong indicator of revenues, fees worked, rose by an average of 7.6% – growing faster than total expenses for the first time in a year. The report notes: “If this trend continues, law firms could finally be poised to enter a period of sustainable profitability.”
- Different market segments are employing divergent strategies to improve profitability. Midsize firms added the most headcount to increase capacity and were rewarded with the greatest demand growth among the market segments, up by an average of 3.7%. Am Law 100 firms, on the other hand, were the only segment to reduce headcount, cutting their associate ranks by 2.5% since the beginning of the year as part of aggressive cost-cutting moves. Am Law 100 firms’ demand grew by a much smaller amount at 0.3%. The report concludes that both strategies proved effective for improving profitability in the second quarter.
The LFFI is a composite index of law firm market performance using real-time Financial Insights data drawn from major law firms in the United States and key international markets.
Download the Q2 2023 LFFI report for more insights.