State of the Legal Industry 2018: Room for rate growth

LMANE Boston June 2018 Lunch Program Rachel Merrick Maggs and Brent Turner.JPGRachel Merrick Maggs, LMANE Boston Program Co-Chair,
and Presenter Brent Turner of Peer Monitor

An overflow crowd at the LMANE Boston June lunch program was armed with compelling data on the state of the legal industry through the first quarter of 2018, as Brent Turner of Peer Monitor reviewed profitability metrics on rate growth, demand for legal services and lawyer staffing models among other topics. 

One of the program’s key takeaways was  that rate growth is driving most profitability in law firms, not increased demand or greater realization of billing rates. Brent observed that rate growth among large and mid-size law firms has been strong over the last year and a half, and is expected to continue to increase for the foreseeable future. 

"Rate growth is the main driver of profitability," he said. 

He did note, however, that demand for legal services overall in the first quarter of this year is down, particularly among AmLaw 200 and mid-size firms, although it remains relatively strong for AmLaw 100 firms. Historically, since the 2008 recession a soft Q1 demand for legal services portends a down year overall, he told the audience of approximately 50 attendees. 

Brent also reported that attorney growth at law firms is slowing, except in the associate ranks. 

"The vast majority of growth is in the associate ranks," he said. "Every other class of attorneys is stagnant or declining." 

The data highlighted in the presentation is based on financial information provided to Peer Monitor by nearly half of the AmLaw 100 and AmLaw 200 law firms across the United States, as well as 68 mid-sized firms. 

Of particular interest to legal marketers, Brent said the most profitable firms in 2014-16 spent 4.6 percent on marketing and business development, while the least profitable firms in the same time frame spent only 1.8 percent by comparison, showing a direct correlation between profitability and spending on initiatives to promote and sell firms, practice areas, and individual attorneys. 

Alternative legal service providers will continue to impact demand for legal services from law firms. He noted that 60 percent of in-house legal departments use alternative service providers, including those specializing in document review, e-discovery, contract management, and contract lawyers and staffing. 

He also indicated that 51 percent of law firms use these providers, suggesting a "holistic" relationship can exist between firms and third party vendors to provide cost-effective services to clients. As Brent explained, reducing costs of legal services is the paramount concern of in-house counsel, based on findings of a survey conducted by the Legal Executive Institute of Thomson Reuters. 

The use of alternative legal service providers is expected to continue to grow for the foreseeable future, he said. 

Prior to the presentation, hosted by Sullivan & Worcester, the attendees enjoyed lunch and catching up with colleagues and contacts. 

Brent also presented on this topic to the LMANE Portland City Group at a luncheon hosted by Eaton Peabody. 

LMANE Portland June 2018 Lunch Program.jpgPresenter Brett Turner of Peer Monitor (right) with
attendees at the LMANE Portland lunch program

The next lunch program for LMANE Boston is slated for July 10 (Noon-1:30 p.m.) at Foley Hoag and will feature Catherine MacDonagh and Matt Parfitt discussing process improvement and profitability. We hope to see you there!

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