The Financial Health of Law Firms Is Approaching Unparalleled Ground

There has been a lot of good financial news for the legal industry in 2024. That hot streak is continuing in the home stretch of the year, according to the Thomson Reuters Institute Law Firm Financial Index (LFFI). The recently released Q3 LFFI score increased another 4 points to reach its second-highest total of all time.
It is the 7th consecutive quarter of law firm growth.
Legal Demand, Productivity, Hiring, and Rates All Up
Legal demand rose in almost all measured practice areas. Litigation demand jumped 4%, while real estate was just behind at 3.7%. Labor and employment, corporate, bankruptcy, tax, and M&A demand rose between .08% and 2.9%. Only IP lowered (by -0.2%).
While we still haven't seen the huge surge in transactional demand that many law firms are hoping for, transactional demand still reached its best performance since early 2022.
The LFFI score is in line with other measures. The Citi Global Wealth at Work Law Firm Group recently found demand up 3.2% across all practice areas.
Lawyer productivity also increased as measured by hours-worked-per-lawyer. The LFFI measured a 1.7% increase in productivity in Q3. This is in spite of many firms adding headcount to keep up with demand.
Speaking of which, all that demand for legal services needs to be filled somehow, which is why the number of full-time lawyers employed by law firms also rose 2%. Importantly, that hiring increase was seen the most by mid-size firms, according to the LFFI. The Am Top 50 appeared to be taking a more cautious approach to hiring.
Overwhelmed by the amount of good news? In summary:
- Demand for work rose
- Rates continued to increase
- Lawyers have been busier than ever
- Hiring has increased
All of this means, of course, that law firm profits have risen in 2024. Equity partners are seeing significant compensation gains. While expenses have also increased, this is minor compared to the productivity and growth experienced by most firms in 2024.
Cautious Optimism for 2025
As law firms look to 2025, can we expect the good times to continue? When asked whether they expected demand to continue increasing into 2025, law firms were a bit cautious. An ALM Q3 2024 Flash Survey found that 43% of Am 200 law firms were uncertain if growth could continue into next year. There is also uncertainty about whether clients will push back against continued rate growth.
The LFFI report contained similar caveats, writing that it "is unlikely that law firms’ climb will continue much higher in light of the latent challenges that might erupt in 2025." Bill Josten, a Thomson Reuters analyst, noted that now may be a good time to focus on rate realization and collection efforts to prepare for any eventuality in 2025.
Still, the growth in demand and productivity for the last 7 quarters is good news, and market indicators show that the legal industry is well-positioned to have a strong year in 2025, even if growth tapers off.
Related Resources
- Legal Jobs Near All-Time High Even as Industry Is Adapting (FindLaw's Practice of Law)
- Equity Partners Seeing Huge Income Gains (FindLaw's Practice of Law)
- Transactional Work, Billing Rates, and Demand Driving Law Firm Growth (FindLaw's Practice of Law)