(Reuters) – Law firms enjoyed near-record profits in the third quarter of 2024 with an 11.2% increase compared with the same time last year, a new analysis of firm financial data has found.
Higher lawyer productivity, strong billing rates and relatively modest increases in direct and overhead expenses suggest that 2024 will be a highly profitable year for firms, according to the Thomson Reuters Institute’s Law Firm Financial Index, released on Monday. The Thomson Reuters Institute and Reuters share the same parent company.
This year’s expected robust results are in contrast to the slump in demand law firms saw in 2022 and 2023 on the heels of a blockbuster 2021.
The Law Firm Financial Index compiles financial quarterly metrics from 195 large and midsized law firms and assigns an overall score based upon key factors such as demand, productivity, billing rates and expenses.
The third-quarter score of 71 is the second highest since the index was founded more than 15 years ago. The highest score—84—came in the second quarter of 2021, when demand for corporate practices such as mergers and acquisitions surged amid a spike in IPOs during the COVID-19 pandemic recovery, before falling off dramatically in subsequent years.
The gains in 2024 look to be more stable and long-lasting because the increased demand is spread across a wide array of practices, the index notes.
Litigation demand was up 4% compared with the third quarter of 2023; corporate practices were up 2.6%; real estate was up 3.7%; labor and employment was up 2.9%; and bankruptcy was up 1.7%, according to the index. Only intellectual property was down compared with a year ago, at less than 1%.
“The tale of the tape for any given quarter is how you do from a profitability standpoint—11.2% is an outstanding profit number,” said William Josten, manager for enterprise legal content at the Thomson Reuters Institute. “For the time being, it’s absolutely a rosy picture.”
Earlier predictions about sustained inflation, an uneven labor market, and slow national economic growth have not come to pass, the index notes, further buoying law firms’ financial prospects.
The election of Donald Trump to the U.S. presidency is also widely expected to generate more law firm work around regulation and compliance, as well as in antitrust and energy practices.
“Any times of change tend to be good for lawyers because people need advice,” Josten said. “We’re set up for a [first quarter of 2025] where a lot is going to change.”
However, waning inflation may decrease law firms’ ability to push up billing rates in 2025—a key driver of profitability over the past year, according to the index.
