Law firms are always hoping there is a “silver bullet” solution that will lead them to greater success and profit. In reality, we know there’s no single magical solution to solve the problems that beguile the legal industry. But the latest study from Thomson Reuters Legal Executive Institute highlights a few areas where some firms have been able to set themselves apart, and provides some guidance as to areas where law firms looking for additional growth may want to focus.
The 2017 Dynamic Law Firms Study is based off an analysis of firms participating in Peer Monitor, and identifies those law firms that have seen best-in-class growth over a three-year period in the key areas of revenue per lawyer, overall profits and profit margin. We conducted an analysis of the entire Peer Monitor universe, calculating the compound annual growth rates for each firm on each of these metrics. Firms were then scored based on their performance on each metric, and placed into quartiles based on their composite score. The upper performing firms — those with the best composite scores reflecting strong growth in these areas — became our Dynamic Law Firm population. The lowest quartile firms — those who have experienced slower growth in these areas or in some cases even contraction — became our Static Law Firm population.
Working backwards from these groups, we then analyzed a variety of metrics to see what set the two populations apart. We examined factors such as overall demand, practice demand, leverage, rates, realization and expenses, among others, to see what separated these groups. We also conducted an online survey to attempt to get at the qualitative “why” and “how” behind the metrics. Some of our findings were surprising. Others confirmed what we suspected. But the final result is a fascinating look at how some law firms have been able to position themselves as industry growth leaders.
To share just a few highlights, it’s not true that those firms with the greatest financial performance must be those who command the highest rates, sit in the Am Law 50, and are based in the Northeast. In fact, the Dynamic Law Firm population was comprised of firms from the Am Law 100 and Second Hundred, as well as Midsize firms, with headquarters locationed across the country. Dynamic firms, in general, had average rates that were fairly in line with the rest of the market, and grew their rates at essentially the same average pace as did the Static firms, and the average firm in the market, according to Peer Monitor.
What set the Dynamic Law Firms apart really came down to demand performance, productivity and realization.