There’s no denying that the COVID-19 pandemic significantly impacted the legal industry. Recent research has uncovered some ongoing challenges (and opportunities) for legal administrators in midsized firms (those with more than 20 employees).
Below, we recap three key findings from the 2023 Legal Trends for Mid-Sized Law Firms report.
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.
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.
Despite the benefits of cloud-based LPM software when it comes to payment options, many midsized law firms need to catch up on technology adoption. Only 27% of midsized law firms reported using cloud-based LPM software compared to 73% of smaller firms surveyed. They are also less likely to use videoconferencing, electronic payments, e-signatures and cloud-based data storage.
The problem? This lack of technology adoption may contribute to both employee and client dissatisfaction. Among our data sets, we see that lawyers in midsized law firms using cloud-based LPM software report significantly higher performance on several metrics ranging from productivity to personal satisfaction. Furthermore, lawyers using cloud-based LPMs are more likely to want to work and meet clients remotely — and, with more and more clients wanting to meet legal professionals virtually, the ability to offer remote meetings could play a vital role in a client’s decision to hire a lawyer.
With one in four midsized firms already using cloud-based LPM software (with obvious benefits), moving to the cloud is no longer a “new frontier.”
However, navigating change in a larger organization will ultimately involve more planning and considerations than smaller firms. To that end, legal management professionals should consider change management best practices, including prioritizing technological upgrades, forming “technology committees” to help advocate for change in their organizations and connecting with their broader network for advice as they navigate the change management process.