Below, we recap three key findings from the 2023 Legal Trends for Mid-Sized Law Firms report.
1. The performance gap between midsized firms and smaller firms is shrinking.
The pandemic significantly impacted midsized law firms. However, they recovered in 2021 and even increased their casework beyond prepandemic levels. And, while the increase in casework was modest overall, midsized firms have seen tremendous growth in billable amounts. They are significantly outpacing smaller firms in this area.
While multiple factors could influence the growth in billable amounts, a convincing argument is that midsized firms are more inclined to raise their hourly rates than smaller firms. Midsized firms have consistently outpaced smaller firms in raising their hourly rates and even outpaced the consumer price index (CPI).
Despite this increase in billable amounts among midsized law firms, the performance gap between them and smaller firms is shrinking. For example, while midsized firms’ utilization rates (the number of hours put toward billable work as measured against an eight-hour workday) climbed slowly from 2019 to 2021, they dropped in 2022. Meanwhile, the utilization rates of smaller firms have remained relatively steady over time.
Similarly, midsized firms have historically lagged behind smaller firms’ realization rates (the amount of work billed to clients), which have remained relatively stable. Still, midsized firms are beginning to make gains that are narrowing this gap. Furthermore, midsized firms are currently outpacing smaller firms in collection rate (the amount of billed work that gets collected), but only by a narrow margin.
“Despite this increase in billable amounts among midsized law firms, the performance gap between them and smaller firms is shrinking.”
So, while midsized law firms are performing comparatively well, their competition is catching up. Legal management professionals should consider opportunities to optimize and streamline processes to improve these key performance indicators.
2. Clients want payment options that many midsized firms aren’t providing.
A critical consideration for outpacing the competition is the client experience. However, many midsized law firms aren’t providing the options their clients have come to expect.
For example, while 79% of clients say they would prefer to hire a lawyer who offers payment solutions that make payments more manageable, only 42% of lawyers in midsized firms recognize this demand (compared to 71% of lawyers in smaller firms). And, while both midsized and smaller firms primarily offer hourly rates and retainer options, smaller firms are more likely to also offer alternative payment models (such as flat fees) than midsized firms (27%, compared to 16% of midsized firms).
Offering alternative payment methods isn’t just a boon for clients — it can also provide firms with stronger revenue streams. For instance, the 2022 Legal Trends Report identified that firms using cloud-based legal practice management (LPM) software were 11% more likely to report strong revenue streams than those going without, likely due to the options and opportunities they provide to streamline the payment process.