Have law firms grown prematurely to what the market can offer?
In a somewhat shocking statement, Wells Fargo’s latest Legal Specialty Group survey suggests that law firms built up their attorney ranks too quickly amid a perceived “boom” in corporate work in 2021. In this blog, we are going to analyse whether law firms can maintain this premature growth by discussing:
1 –The results of Wells Fargo’s Legal Speciality Group survey
2 – What these results mean for law firms
3 – How Nexl reduces profit risks through Revenue Operations
The results of Wells Fargo’s Legal Speciality Group survey
In August 2022, Wells Fargo’s Legal Speciality Group released new data about law firm growth rates in the first half of 2022. After surveying 120 large, midsized and regional law firms to examine growth rates across the industry, the study revealed that law firm profits are declining drastically due to a slowdown in demand and an increase in costs.
Across the law firms surveyed, lawyer headcount has increased by more than 5% each year. This increase was driven by the corporate boom in 2021 – law firms needed the extra heads and hands to handle the increase in transactional work.
However, once that boom evaporated and costs began to rise, client demands began to decline. Research confirmed that as deal work slowed down, law firms began to see a knock-on effect, with lawyers’ billable hours decreasing by 5% compared to the previous year. What was even more shocking was what Wells Fargo’s data suggested about the future – that this decline in demand is only the beginning. The underutilization of lawyers has been increasing, and will likely become more pronounced as this year’s class of new associates joins their law firms.
What does this mean for law firms?
The findings from Wells Fargo’s survey matched the findings of the recent Thomson Reuters Institute report, which warned law firms of declining demands and rising costs. In summary, their research found that law firms aren’t expected to match their 2021 record profits – whilst revenue is up by 6%, total costs have simultaneously increased by 14% over the past year. Learn more about the Thomson Reuters Law Firm Financial Index and how Nexl plans to combat the issues presented.
With the overall increase in expenses and the reluctancy of firms to introduce proactive solutions that reduce revenue risks, law firms’ profits are plummeting quickly. Unfortunately, this could prove fatal for new hires and partners alike.
Although law firms are generally reluctant to lay off newly-hired lawyers, firms many not have the option to remain overstaffed. Lawyers in both large and small firms need to be weary – without a dedicated revenue strategy, firms may need to downsize in order to stay afloat in this current volatile market environment.
How Nexl reduces profit risks through Revenue Operations
We at Nexl are helping law firms to overcome this problem of declining profits.
Nexl is a three-part system: No-data-entry CRM, Relationship Intelligence/ERM and Revenue Operations Platform. With our no-data-entry CRM, Nexl automatically captures all of your lawyers’ interactions. Any email sent or received and any meetings with clients, prospective clients or referral sources are automatically captured—and with our Relationship Intelligence and Revenue Operations Platform, these interactions are analysed and turned into actionable insights to help law firms accelerate their revenue growth.
There are three main ways that we are helping law firms:
1 – The first is we are helping law firms discover where there might be revenue expansion opportunities with their current clients. Through Relationship intelligence and transparent relationship mapping, law firms can see which practice areas a client currently interacts with most, and identify complementary areas for cross-selling initiatives.
2 – The second is that we are helping to drive referrals and introductions. With our “who knows who” feature, lawyers can identify key relationships with potential clients – both within the firm, and within the firms’ wider external network. Furthermore, built-in referral tracking was designed specifically for law firms, firms can easily manage both inbound and outbound referrals, for a complete referral strategy.
3 – Third, we are helping law firms identify new clients that fit their ideal client profile. With Nexl’s Prospecting intelligence, law firms are able to find relevant companies based on location, industry, and size. Combined with insight into prospective clients’ key stakeholder relationships, firms can drive expansion into their most successful sectors and profiles.
Although law firm profits are down 15%, Nexl can help! If you want to learn more, check out our revenue operations cloud platform or click on the “Request Demo” button below.