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 162,800 law firms 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 the budgets of their legal departments, forcing them to reduce 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 $1.8 million in annual revenue.

    • There are about 162,800 law firms in the US with over 1 million employees and generating about $295 billion in annual revenue.
    • Another 292,500 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
                                Source: Vertical IQ and Inforum

                                Recent Developments

                                Oct 28, 2022 - Law School Applications Tumble
                                • The number of current year applicants (for enrollment year 2023) to law schools declined 12.2% compared to a year ago and is down 9.3% versus two years ago, according to data from the Law School Admissions Council (LSAC). The application drop off for the current admissions cycle reverses a surge in applications in recent years. The LSAT scores of applications fell as well, down 14.5% this admissions cycle versus the last, suggesting that the next crop of lawyers may not be as near the top of the academic crop as usual, according to Above The Law. Schools are seeing 14.2% fewer applicants scoring 170-180 and 13.8% fewer in the 160-169 range, LSAC data shows. These dips are more pronounced than the loss of applications in the 120-159 group. Gender and ethnic diversity also declined among current applicants, falling 11.1% overall.
                                • Silicon Valley's Gunderson Dettmer in September 2022 announced a deferral program for its incoming first-year associates, becoming the first major law firm known to delay its incoming classes start date this year, Above The Law reported in October. Above the Law learned that associates were told that their end-of-October start date was being pushed back to mid-January, 2023. Gunderson reportedly cited slowing demand as the reason for the deferral, according to ABA Journal. With fear of a US recession in the next 12 months growing and business slowing for big law firms, Above The Law posited that deferrals could be making a comeback.
                                • Many law firms want associates and support staff to spend more time in the office, but younger lawyers are more likely to put a premium on flexible and hybrid work schedules. An American Bar Association (ABA) study released in September showed that 44% of lawyers with 10 years or less of practice would leave their current job for one that offered more remote work. The ABA survey suggested that the propensity to highly value remote work decreased with age. Only 30% of lawyers with 21 to 30 years of experience were willing to leave their jobs to increase remote work opportunities. In a separate September report by legal tech firm BigHand, nearly half of legal support staff respondents said they were “actively ignoring” in-office work mandates.
                                • The US legal industry has seen less demand in 2022 as key drivers, such as mergers and acquisitions and IPOs, have cooled. However, midsize firms have seen less impact than their large counterparts in terms of demand and productivity, according to a recent report by the Thompson Reuters Institute. Through the end of the second quarter of 2022, midsize law firms saw demand rise 1.7%, while demand fell 0.2% for the top-grossing 100 firms as ranked by American Lawyer. During the same period, the productivity of midsize firms fell 1.8%, while productivity in the top 100 firms dropped 3.3%. The Thompson Reuters Institute suggests that midsize firms may have gained an advantage as clients chose counsel based on perceptions of cost-effectiveness.
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