Mid-single digit revenue growth and modest profit growth expected for law firm industry in 2023, outperforming previous year
Strong activity in high-performing practices this year expected to continue, with optimism around transactional rebound in 2024
The Law Firm Group of Citi Global Wealth at Work and Hildebrandt Consulting today released their 2024 Citi Hildebrandt Client Advisory, which establishes the broad landscape for the law firm industry, how firms are responding to industry and market challenges and their potential opportunities for growth in the year ahead.
Measured against a challenging 2022, revenue growth for the first nine months of 2023 was 4.8% on average for the industry. In the same period, industry demand declined 0.7%, and the collection cycle lengthened by 5.0% — continuing a nearly two-year trend of law firm clients taking longer to pay bills. Expense pressure remained strong, with total expenses up 4.8% at the nine-month mark, driven by the inflationary pressures on firms’ operating expenses.
As anticipated in last year’s Client Advisory, practices less dependent on M&A and capital markets work performed better, with litigation, regulatory and investigations, funds/investment management, bankruptcy and restructuring, and intellectual property seeing strong activity. This resulted in a greater decline in demand for Am Law 1-50 firms (1.2% on average) for the first nine months of 2023, while demand levels for other Am Law 200 segments only decreased slightly. Even as demand declined, total lawyer headcount climbed 2.9%, though growth moderated over the course of the year. The high interest rate environment will likely remain in 2024, yet a rebound in transactional practices is anticipated when the market steadies.
“Despite inflationary pressures and a volatile geopolitical and macroeconomic environment, we continue to observe a stable legal profession that performs better than expected in the toughest of times,” said Brad Hildebrandt, Chairman of Hildebrandt Consulting.
Talent and technology present both challenges and opportunities for law firms in 2024 and beyond. A war for partner talent continues, as equity partner headcount grew 0.9% in the first nine months of 2023, compared to historically flat growth. Income partners are also increasing over time, with 85% of firms that have income partners increasing this number from 2017–22 — some establishing the income partner category during this time. An ongoing focus on income partner growth is expected, particularly as a retention tool among large, highly profitable firms.
On the technology front, rapidly developing generative AI captured the attention of the legal industry in 2023. Some firms started experimenting with generative AI while also focusing heavily on identifying the associated risks, with protecting client and firm confidentiality top of mind. While generative AI has not had much impact at this stage, it’s viewed as a positive development for lawyers and another step on the long continuum of lawyers embracing technology to improve the delivery of legal services.
“Firm leaders continue to maintain a growth mindset and look beyond short-term demand challenges by investing in talent and opportunities to expand,” said Gretta Rusanow, Head of Advisory Services for the Law Firm Group, Citi Global Wealth at Work. “We’re optimistic that 2024 will be an even stronger year than 2023.”
Analyses and projections are based on data collected from Citi Global Wealth at Work's sampling of primarily U.S.-headquartered law firms, as well as conversations with law firm leaders. Sources include the “Citi Annual Survey Database” of 211 U.S.-and U.K.-headquartered firms, including 44 Am Law 1-50 firms, 37 Am Law 51-100 firms, 57 Am Law Second Hundred firms, and 73 additional firms; 194 firms from the “Citi 9mo’23 Flash Survey,” including 44 Am Law 1-50 firms, 38 Am Law 51-100 firms, 51 Am Law Second Hundred firms and 61 additional firms; the “Citi Law Firm Leaders Survey” of 56 large firms headquartered in the U.S., U.K., China and India; and the “Law Firm Leaders Confidence Index” which reports the forward-looking opinions of law firm leaders from 146 firms.
This report is for informational purposes only based on those responses from the survey and are not intended to represent investment advice.
The views expressed herein are those of the participants and do not necessarily reflect the views of Citigroup Inc., Citigroup Global Markets Inc., and its affiliates.
The full Client Advisory can be accessed here.
About Citi
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About Hildebrandt Consulting
Hildebrandt Consulting is continuing its long and distinguished history as the preeminent global consulting firm in the legal profession. With clients in over 15 countries, Hildebrandt has built up unmatched expertise in every aspect of professional firm management. Our reputation for helping firms arrive at strategic solutions comes from our knowledge of the interdependent elements that contribute to overall business performance.
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