Nov 11, 2024 | Law Firm Financial Index
Law Firm Profitability Up: Top Takeaways from the Q3 2024 Thomson Reuters Law Firm Financial Index
Law firms registered their seventh consecutive quarter of improvement, driven by strong demand and continued gains in productivity.
Law firms are on an impressive streak, notching their seventh consecutive quarter of profit improvement amid an acceleration of demand and continued gains in productivity. That’s one of the key findings of the Q3 2024 Thomson Reuters Law Firm Financial Index (LFFI), powered by Financial Insights. Below is a look at standouts from the report.
- Lawyer productivity gains are boosted by technology
In Q2 2024, for the first time in years, a majority of law firms experienced productivity growth. In Q3, a whopping 64% of law firms reported productivity growth, building on the gains seen in Q2.
“The continued climb in law firm average productivity – in stark contrast to previous years – is a key factor boosting law firm profitability,” said Raghu Ramanathan, president of Legal Professionals, Thomson Reuters. “Law firms that not only invest in new technology but also adopt AI and generative AI solutions to streamline workflows and improve the efficiency and quality of their work will be best positioned to improve client satisfaction and experience sustained productivity growth.”
2. Demand continues to rise
Overall demand for legal services is up by a solid 3.6% compared to the same quarter last year. Leading the charge are counter-cyclical practices, with litigation demand up by 4.0% and labor & employment not far behind at 2.9%. Real estate led the growth in transactional practices, up 3.7%. The balanced growth across practice areas indicates a more sustainable expansion than what law firms experienced during the post-pandemic boom.
3. Both full-time equivalent headcount and productivity are up
Q3 2024 was the first time in three years that law firms increased both their full-time equivalent headcount and productivity. While there’s been a slight uptick in expenses – 5.7% for direct and 5.3% for overhead – the modest hiring rate compared to the boom years of 2021 and 2022 is helping firms keep these costs in check.
4. Stable economy provides ideal growth environment
The strong performance for law firms was supported by a stable and healthier-than-expected U.S. economy. Despite earlier concerns about sustained inflation and slow economic growth, the economic environment has provided a foundation for law firms to thrive. Law firms are positioned for a strong close to 2024.
Download the full report for additional insights on the factors shaping the future of law firm profitability and productivity.
