Q3 2024 LFFI: Law Firms See Record Profits Amid Growing Demand
As the year winds down, law firms are showing exceptional financial strength, deftly managing growth and productivity enhancements while balancing higher expenses with rising revenues. According to the latest Thomson Reuters® Institute Law Firm Financial Index (LFFI) for the third quarter of 2024, law firms are benefiting from a resurgence in demand and steady productivity gains, pushing the index score up by four points to 71—the second-highest on record.
Key Insights from Q3
The LFFI’s latest score is surpassed only by early 2021 levels, reflecting a period of substantial financial strength across the legal sector. This quarter marks the seventh consecutive period of improvement for law firms, with gains seen across all measured metrics. Demand growth has been particularly robust across major practice areas, and nearly two-thirds of firms reported rising productivity in Q3 2024.
Transactional demand, in particular, has surged to levels unseen since early 2022, while growth has been especially strong in counter-cyclical practices like litigation, real estate, labor and employment, and corporate work. This dual rise in transactional and counter-cyclical demand has created a more stable and diversified revenue stream for law firms, helping to cushion the industry from economic fluctuations.
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Significant Rate Growth Fuels Revenue
The high rate of growth in worked rates seen earlier this year continued through the third quarter, contributing to one of the fastest rises in fees recorded since the inception of the LFFI. Transactional practices, buoyed by higher billing rates, saw notable fee increases, as did other practice areas, thanks to strong performances across both transactional and counter-cyclical services. This combination has fostered a more sustainable revenue model, allowing firms to build a more robust financial foundation.
A More Stable, Diversified Market
Compared to the previous period of high performance during the post-pandemic boom, today’s legal market appears more resilient and sustainable. While the previous surge in demand was driven by a stimulus-fueled U.S. economy aiming to address pandemic-related challenges, today’s growth is distributed across multiple practice areas, making it less dependent on any single sector or economic stimulus. With worked rates accelerating and the market recovering from pandemic lows, the current growth trajectory feels more sustainable and balanced.
Law firms have also benefited from controlled expenses, despite a slight increase in direct and overhead costs this quarter. These expenses are lower than those recorded during the last transactional peak and remain somewhat detached from broader inflationary pressures. This cost control suggests that firms are optimizing market opportunities rather than being constrained by inflation.
Although firms aren’t experiencing the same rapid profit growth as in previous cycles, their improved expense management and diversified revenue streams have resulted in a stronger, more resilient foundation. Many firms now seem well-positioned to sustain profitability over the long term, with less reliance on short-term booms to achieve their financial goals.
Strong Prospects for Continued Stability
The Q3 2024 LFFI report reveals an industry on a positive trajectory toward lasting financial stability, with demand growth spread across multiple practice areas and more disciplined expense management. This trend suggests that law firms are well-prepared for long-term success, with diversified demand and steady growth likely to support their financial strength in the years ahead.