BigLaw Sees Demand and Productivity Drop. Will It Trickle down to Small Firms?

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.

1 Comment

  1. Avatar Paul Spitz says:

    First, billable hours are a valid measure of productivity only to the extent that a firm bills by the hour, and imposes billable hours requirements on its attorneys. If you bill on a flat-fee basis to a significant degree, billable hours aren’t really a good measure of productivity. I think that a better measure of productivity (or rather, success) for solos and small firms is whether the numbers of new clients and matters are increasing.

    As for expenses, I think that solos and small firms have a huge advantage over biglaw in keeping expenses down. The kind of office space we look for is less expensive, and we have a variety of tech options that reduce costs. A big law firm, on the other hand, is typically going to be leasing a large amount of first-class office space, and then decking it out lavishly to impress lawyers and clients. Biglaw is also likely to have custom technology, rather than off-the-shelf cloud-based tech, and that custom technology costs more and requires a greater investment in support.

    Finally, it’s important to remember that solos/smalls and biglaw live in different universes, in terms of the types of work they do and the clients they seek out. Over the past 20 years, biglaw has become much more reliant on bet-the-company litigation and highly complex transactional and regulatory work. I think they have de-emphasized those fusty old partners that did wills and trusts, and don’t do any criminal/DUI work unless it is white collar for the executives of their corporate clients. All the bread-and-butter corporate work has gone in-house. If the big institutional and corporate clients are cutting the work that they send to biglaw, that shouldn’t impact solos and smalls negatively, as those types of clients don’t use solos and smalls in the first place. If anything, pulling some of that work from biglaw may benefit small boutiques and solos that can snag some of it as new business.

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