Thomson Reuters Peer Monitor, which tracks the large law firm market, just released its Q2 2016 report. After nine straight quarters of an uptick in demand for large law firm services, demand dropped 0.9 percent. Productivity—defined as hours worked per attorney—also dropped 2.8 percent. Through all this, however, large and mid-sized firms kept hiring, so firm headcounts are up at a time when there’s just not work for that many employees. Finally, expenses have gotten, well, more expensive.
It’s not necessarily time to sound klaxon-level alarms, but it was a surprising dip for the larger end of the market. What does that mean for smaller firms?
It’s unclear, but it raises some interesting questions. First, are billable hours the best way to measure your productivity in a smaller setting? What about time spent networking with other attorneys or attending local business meetups? These things may lead to clients and connections but aren’t “productive” by the traditional metric. Similarly, in a small setting you aren’t able to offload the business of running your firm–dealing with invoicing, billing, collections, and timekeeping, which also decreases productivity under this framing.
There is also the question of whether small firms are seeing a similar uptick in expenses. For big firms, the main increases expenses came from technology costs, recruiting costs, and pay hikes. Are solosmalls seeing their technology costs go up? Practice management software pricing has remained roughly steady, so it’s unlikely solosmall practitioners would see a hike there. What about hardware and maintenance costs?
Perhaps most important, this requires solosmall firms to ask whether this downturn in demand will trickle down to smaller firms. Unfortunately, Thomson Reuters’ report isn’t really designed to dig into the why of the decreases–just that they have occurred. It may be time, however, to start paying attention to your expenses and demand for your services, just to make sure you’re not seeing increases and decreases in the wrong places.