Law Firms
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 159,000 law practices in the US provide advocacy and advisory services to businesses, non-profit organizations, individuals, and government agencies. The practice of civil law accounts for 94% of the legal industry’s revenue, while criminal law accounts for only 4%.
Client Cost Cutting
Businesses have cut their legal budgets, resulting in reduced spending on outside legal services.
Alternative Fee Arrangements
Driven by client demands for cost containment, firms are offering alternatives to the traditional billable hour model.
Industry size & Structure
The average law firm operates a single location, has 6-7 employees and generates $2 million in annual revenue.
- There are about 159,000 law firms in the US with over 1 million employees and generating about $343 billion in annual revenue.
- Another 290,300 lawyers practice solo.
- The industry is highly fragmented with the 20 largest law firms representing less than 10% of revenue.
- The largest US law firms by revenues are Baker McKenzie; Skadden, Arps, Slate, Meagher & Flom; Latham & Watkins; Jones Day; and Kirkland & Ellis.
Industry Forecast
Law Firms Industry Growth
Recent Developments
Feb 12, 2025 - Profits Up, Demand Slowing
- Profits at law firms were up a substantial 11.5% in the third quarter of 2024 - a near record - according to the Law Firm Financial Index, published by Thomson Reuters. Most of the gains came from an increased focus on litigation and bankruptcies. It could be a short-lived boost, however, when taken along with an anemic 3% growth rate in Q4 in demand for legal services. Other complicating factors for law firms at the end of the year include bonus payments, increased operational costs, and significant technology investment - all of which could squeeze profits heading into 2025. Per the Thomson Reuters Institute, lawyer productivity was also down 0.4% in the fourth quarter, which was a byproduct of increased hiring and a shifting demand away from litigation and towards corporate law. When demand is down, law firms tend to increase billing rates to mitigate profit losses.
- The alternative legal services (ALS) market, which provides clients with services not performed by a traditional law firm, has grown to a $28 billion business according to a report issued jointly by the Thomson Law Institute, Georgetown Law School, and the University of Oxford. Corporations and law firms are increasingly using ALS providers as a way to reduce in-house legal costs and or take advantage of specialized industry-specific services such as technology or project management. Other ALS services include access to temp lawyers and paralegals, software services, research and consulting. Most of the growing market (almost 90%) is made up of independent companies. The rest comes from “captive” law firm subsidiaries and affiliates, as well as accounting companies. Roughly one-third of law firms report having some sort of ALS unit.
- Amid uncertainty facing foreign firms, large US law firms increasingly exited their China operations in 2024, according to Reuters. Challenges - including tepid deal activity, rising geopolitical tensions, and China’s ramped-up pressures on foreign companies -contributed to at least 11 US law firms closing or announcing future shuttering of their offices in Beijing, Shanghai, and Hong Kong in 2024. A California-based legal consultant speaking to Reuters said he expects more law firms to pull out of China in 2025, but departures may have peaked last year. However, President-elect Donald Trump’s plans to impose a tough tariff regime on Chinese imports could further sour US-China relations.
- So-called “nuclear verdicts” - jury awards of more than $10 million - are increasingly common, according to the Wall Street Journal. Consumer advocates suggest large verdicts protect victims, but the business community argues that such awards drive up insurance costs, which are passed on to consumers through higher prices. Some industry observers suggest that absent reforms – including tort reform – insurance could become much more expensive in some regions or unavailable.
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