At the close of 2019, the future of the legal industry seemed bright. Most major law firm executives were projecting higher billing rates, increased billable hours, and improved firm performance in the coming year. Unfortunately, the coronavirus introduced many new challenges for law firms.
While clients struggle to survive the marketplace crash, law firms have been forced to implement pay cuts, furloughs, layoffs, and deferred distributions. As a result, firm leadership must expect high volatility and budget for contingencies. In this article, we’ll explore how expectations have changed among law firm leadership in response to evolving market conditions.
In the upcoming sections, we refer to recent findings from the law firm survey performed by the legal consulting company, Altman Weil. Their survey is entitled 2020 Law Firms in Transition, and it includes sections on industry trends, market demand and competition, productivity, profitability, pricing, and efficiency of legal service.
Researchers from the company were able to collect data from over 180 firms, a quarter of which employ more than 250 lawyers. The survey is highly unique because responses were collected before and during the pandemic. The resulting data allows us to compare and contrast their changing attitudes and projections.
For years, many firms have been overstaffed and underemployed. With so many specialists in areas like finance, human resources, marketing, IT and business development, it seems counterintuitive that poor performance would slip through the cracks. In fact, a staggering 84% of firms reported that they had underperforming lawyers on the payroll.
Prior to March 22nd, respondents were asked whether they would fire underperformers in a moderate recession. At the time, 60% of respondents said they would. As pandemic conditions worsened, this number only increased – with 71% of respondents saying they would reduce staff. Based on historical data, 86% of the firms who removed underperformers in the past felt it delivered a significant improvement to firm performance.
The Value of Niche
Differentiation is critical for firms of all sizes. Prospective clients look for law firms with a compelling value proposition, particularly in competitive markets. One survey question focused on differentiation, and cut straight to the heart of the issue.
“Many law firms look the same to prospective clients – they do not project a distinct and compelling value that differentiates them from other similar firms. In your most candid assessment, do you believe your law firm is clearly and specifically differentiated from competitor law firms?”“Many law firms look the same to prospective clients – they do not project a distinct and compelling value that differentiates them from other similar firms. In your most candid assessment, do you believe your law firm is clearly and specifically differentiated from competitor law firms?”
With such a broad consensus on the importance of differentiation, the responses to this question were surprising. Only 55% of participants felt their firm had successfully distinguished themselves in their market. In their executive analysis, Altman Weil concluded that “true differentiation, especially at the practice group level, is a must for most firms.”
Space-saving Measures Underway
The transition to remote working occurred rapidly, but the work-from-home experience may be here to stay. In addition to other cost-saving measures, law firms have begun to recalculate their need for office expenses. This move has the potential to be highly effective, and researchers anticipate that “firms will be able to save as much as 3.5% of revenue over time from renegotiated leases.”
In addition to these projections, we can also refer to historical data for insight on space-reduction. In the past, 29.3% of respondents stated they had downsized to a smaller office space. Of that group, a whooping 85% reported that it led to a significant improvement in profitability.
Thanks for reading! We hope you found this information helpful in determining how law firms plan to adapt to these changing times. If you enjoyed this article, let us know in the comments and feel free to share it on social media. Remember: we’re here for you from File Thru Trial™.