Law Firm Profitability Reaches New Heights, Positioning Firms for a Strong Close to 2024

TORONTO, Nov. 11, 2024 – Thomson Reuters (TSX/NYSE: TRI), a global content and technology company, issued a new report today showing that law firm profitability is on the rise amid an acceleration of demand and continued gains in productivity. The Q3 2024 Thomson Reuters Law Firm Financial Index (LFFI), powered by Financial Insights, showed a strong outlook for law firms with overall demand up 3.6% compared to Q3 2023.

Growth in demand was led by the counter-cyclical practices of litigation, up 4.0%, followed by labor & employment, up 2.9%, compared to Q3 2023. Notably, the first two quarters of 2024 showed signs of a counter-cyclical practice slowdown, yet in Q3 counter-cyclical demand hit its strongest growth pace in more than a year – achieving growth even on top of its 10-year-high. 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. The growth trajectory is further supported by a more stable and healthier-than-expected U.S. economy, despite earlier concerns about sustained inflation and slow economic growth.

In addition, the strong growth in worked rates from Q1 and Q2 2024 carried into Q3. Worked rate growth was at 6.5%, down slightly from 6.6% in Q2 2024.

Lawyer productivity also continued its positive trend. While Q2 2024 marked the first time in years that a majority of law firms experienced productivity growth, the figure rose even further in Q3 to 64% of firms.

“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.”

Also of note, Q3 2024 marked the first hiring season in the last three years in which law firms achieved both full-time equivalent growth and productivity gains. The headcount increases contributed to a slight uptick in expense growth for both direct (5.7%) and overhead (5.3%) expenses. Yet a modest hiring rate – compared with the excessive levels seen in 2021 and 2022 – helped firms keep expense growth in check.

A copy of the Q3 2024 LFFI report can be downloaded here.

The LFFI, produced by the Thomson Reuters Institute, is a composite index of law firm market performance using Financial Insights data drawn from major law firms in the United States and key international markets.

Thomson Reuters

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