Law firms struggle with over-capacity and new competitors 

Although the recession has eased and business levels and confidence is noticeably higher, law firms are still battling for growth in the face of competition from the profession and from external organisations.

Altman Weil’s seventh annual Law Firms in Transition Survey looks at how the legal market is changing. It surveyed 320 US law firms with 50 or more lawyers, including 45 per cent of the Am Law 200.The survey finds that market demand has already returned to pre-recession levels in 32 per cent of law firms, and another 41 per cent of firm leaders expect demand to return in the next few years. Two-thirds of firms participating in the survey report increases in gross revenue, revenue per lawyer and profits per equity partner in 2014.

Over-capacity

However, a quarter of all law firms surveyed, and one third of firms with 250 or more lawyers, do not expect demand to come all the way back in the foreseeable future. Over-capacity, especially in larger firms, is endemic and a drag on profitability. In over half of all law firms, partners are not sufficiently busy according to the survey. In firms with 250 or more lawyers, the number of partners who don’t have enough work jumps even higher. Not surprisingly, 61 per cent of all firms say over-capacity is diluting firm profitability, and that’s the case in 74 per cent of firms with 250 or more lawyers.

Non-traditional competitors

A further restraint on future law firm profitability is that non-traditional competitors are actively taking business from law firms. Clients themselves are the most active competitor outside of the traditional law firm ranks. Sixty-seven percent of responding firms say they are currently losing business to corporate law departments that are in-sourcing legal work. Clients’ use of technology tools, non-firm legal vendors and non-traditional law firms are also cannibalising work that once went to law firms. Conducted in March and April 2015, the Law Firms in Transition Survey polled Managing Partners and Chairs at 797 US law firms with 50 or more lawyers. Completed surveys were received from 320 firms, including 47 per cent of the 350 largest US law firms and 45 per cent of the Am Law 200.

Source: GlobalLegalPost – Law firms struggle with over-capacity and new competitors

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