November 15, 2023
A recent Law 360 story by Aebra Coe, “Law Firms See Revenue Growth Amid Soaring Billing Rates”, reports that as of the end of the third quarter of 2023, U.S. law firms had increased their revenues, on average, by 4.6% year-over-year as a result of "the highest growth in billing rates we've seen," according to a new report from Wells Fargo Legal Specialty Group. Law firms brought in more revenue even as demand continued to lag, increasing just 0.2% as of the end of the third quarter across the cohort of more than 120 law firms surveyed by Wells Fargo, according to the report.
The rise in revenue was largely fueled by a 7.9% year-over-year increase in billing rates among all the law firms, and an 8.2% increase among the respondents ranked in the top 100 in the U.S. by revenue, the report said. With the jump in revenue, law firms also posted an increase in net income and profits per partner as of the end of September, with net income on average increasing by 2.7% and profits per partner by 1%. However, those results were buttressed by strong numbers reported by the largest law firms, with smaller firms faring less well.
Among the top 50 law firms by revenue, net income was up 5.2%, among the top 100 firms it was up 3.7%, and among the firms ranked in the second 100 by revenue, net income actually fell by 3.9%. For those that performed well on net income, one major contributor was an industrywide reining in of expense growth, according to the report. Expense growth slowed to 5.6% at the end of the third quarter, down from 6.2% midyear and 12.8% this time last year.
Alongside the differences in net income, law firms' expense growth also varied based on firm size, with the largest firms seeing smaller upticks than those among the second 50 largest and second 100 largest by revenue. One part of the expense equation for firms is lawyer headcount, which continued to increase during the third quarter, although at 3.5%, the pace was slightly slower than in the previous year.
Because of the flat demand and increases in headcount, lawyer productivity among the cohort remained low, with an average annualized pace of 1,540 billable hours per lawyer, maintaining levels logged midyear that are well below 2018, 2019 and 2021 figures, the report found. Of the more than 120 law firms surveyed by Wells Fargo for the report, 65 were among the 100 largest in the U.S. by revenue, 30 were among the second 100, and the remainder represented regional law firms, according to the bank's legal specialty group.