Law firms that establish and maintain a strong brand will be better positioned to capture revenue growth in their established markets, practices and industries, according to the newly released 2018 Citi Hildebrandt Client Advisory.
The annual report was released by the Law Firm Group at Citi Private Bank and Hildebrandt Consulting, and addresses how law firms continue to respond to legal industry challenges, and where their best opportunities for growth in the coming year can be found. The Client Advisory draws from data collected from a sampling of primarily US-headquartered law firms by Citi Private Bank.
Through the first nine months of 2017, the US law firm industry saw revenue growth of 3.6%, which has been entirely driven by standard rate increases of 4%, as demand declined by 0.2% and collections slowed by 0.9%, according to the report. Further, the report showed that this year’s demand is weaker than the 0.3% increase the industry saw during the first nine months of 2016, a year that ended with just a 0.1% percent increase in demand overall.
“And though law firms will give a portion of the standard rate increase back in the form of discounts, the remainder is responsible for the revenue growth that the industry is enjoying with three months left to the year,” the report stated.
Going forward, the report predicts that overall industry revenue and profitability growth rates in 2018 will continue to be in line with the mid-single-digit range seen throughout much of 2017.
“For some firms, further growth in this environment will come from expansion into new markets, practices or industries. For many, growth will come from laterals or combinations,” the report’s Executive Summary stated. “Success in this market will likely come to firms who are most nimble in their response to client demands for a more efficient delivery of legal services.”
The 2018 Client Advisory strongly suggests that the manner in which law firms address two major factors — how they adapt their service and talent models to respond for client calls for more efficiency in the delivery of legal services; and how they prepared for the likely flood of equity partner retirements forecast to occur in coming years — will be crucial in firms’ future growth and stability.
“In the long-term, success will likely come to firms who adjust their talent models to market forces and who focus on building a robust growth model that attracts, develops, and retains the best legal talent,” said Gretta Rusanow, Head of Advisory Services, Law Firm Group at Citi Private Bank, in a statement.
Not surprisingly, this year’s Client Advisory also cited the growing importance to law firms of the ever-increasing role of technology, especially artificial intelligence, which is likely to help reshape the industry, the report said.
“Despite the challenges outlined in this Client Advisory, we believe that the law firm industry will continue to grow, albeit modestly. It remains one of the most profitable personal services businesses in the world,” said Brad Hildebrandt, Chairman of Hildebrandt Consulting, “That said, we expect to see further consolidation and some law firm dissolutions as weaker firms lose their ability to compete.”