Despite Dynamic firms’ dominance in virtually every metric represented in the report, understanding which metrics contribute most substantially to growth can be an intricate task. It is, therefore, essential to delve deeper into the underlying data that informed the report鈥檚 conclusions to comprehend what truly distinguishes these two groups.

The graphic below offers a comprehensive perspective of the distribution that underlies the averages of nearly every single metric covered in the report. It presents the percentage of both Dynamic and Static firms which outperformed the all-firms average over the decade.

At the top of the table, you see that 100% of Dynamic firms achieved a compound annual growth (CAGR) over the decade that was superior to the average law firm in our two core factors (RPL and PPL). It shouldn鈥檛 be much of a surprise since these metrics were the basis for our methodology. By comparing the Dynamic firms鈥� percentage to the Statics percentage (far right column), you can start to see which metrics really separate Dynamic and Static firms.

Starting with our key performance measures, you can most clearly see where our obsession with aggressive rate strategies begins and why the RULES of Profitability (Rates, Utilization, Leverage, Expenses, and Speed) 鈥� outlined by David H. Maister in his book, Managing the Professional Services Firm (Free Press, 1997) 鈥� starts with rates. Nearly 76% of Dynamic firms saw an above-average worked rate increase over the last 10 years, compared to only 20% of Static firms.

This significant 56-percentage point disparity is the largest in the report, establishing rate increases as a crucial determinant of a firm’s Dynamic nature. However, this advantage does come with issues itself.聽 As their rate growth lagged, above-average realization values tended to favor Static firms. And considering that nearly half of Dynamic firms still had above-average realization speaks to how their aggressive stance on rate increases hasn鈥檛 incurred quite the bite back from clients that one might expect.

The table also illustrates the second greatest difference (44 percentage points) between the segments in two key performance metrics 鈥� productivity (utilization) and fees worked (a proxy for revenue). Utilization, (our second RULES component) which roughly considers the manpower costs involved in gaining billable hours or revenue, is an influential metric that is vital to the profitability picture.

Within utilization, some lawyer titles are more important than others 鈥� and you can see which titles tended to separate our firm groupings on that same table. The net percentage point difference between the segments for hours per lawyer per month for associates sat at 52 (second-highest value aside from rates and methodology), while equity partners were at only 24. This can be instructive for two reasons.

First, 76% of Dynamic firms had above-average utilization for both titles, but it鈥檚 the Static firms鈥� underperformance in associate productivity where we find the real difference, as shown in the figure below. This leads into the second reason: associate鈥檚 salaries are effectively a fixed cost, and every hour they bring in after their salary is satisfied goes into the partners鈥� profit pool.

While equity partners鈥� fees are much higher in total and per hour, partner revenue will inherently be returned at a distribution pool. In other words, partners eat everything they hunt; while associates, on the other hand, ideally provide more to the pool than their cost. This means that the margin gain from associates鈥� hours is where partners truly benefit, as it serves something closer to passive income.

This ties nicely with the RULES鈥� L or leverage (which also has a net difference of 20-颅plus percentage points in favor of Dynamic firms), and where we see a very revealing development among Static firms. The leverage and the utilization differences suggest that Static firms may be over-incentivizing partners’ output rather than encouraging partners to support and prioritize drumming up business until their associates are fully booked, even at the loss of a portion of partners鈥� own billable hours.

It is clear that having strong performance in rates, utilization (especially for associates), and leverage appear to be non-negotiables factors in becoming a Dynamic law firm. It is one thing to say that these are necessary metrics in which firms need to succeed, however, the real challenge is implementing the vision and infrastructure to accomplish them.

In a subsequent article, we will explore the E or expenses and the S for speed (of billing) parts of the RULES rubric to see how a firm’s strategic direction and execution with expenses need to work in concert to accomplish their already established rates, productivity, and leverage goals.

You can download a copy of the 成人VR视频 Institute鈥檚 Dynamic Law Firms Report 2023 here.

To dig deeper into this question, the 成人VR视频 Institute has released its eighth iteration of the Dynamic Law Firms Report, aiming to identify the strategies and behaviors that contribute to market-leading growth among certain law firms. This year’s report takes a longer-term perspective, analyzing a 10-year period to identify sustained strategies and challenges faced by law firms in their struggle not just for short-term gains but also long-term success.

Key findings from the report include the significance of total billable hours, a shift towards transactional practices, the importance of rate and realization balances, the need to protect lawyer productivity, and the impact of investment choices.

The methodology of the report involved a slight change from previous editions as well. Instead of a three-year snapshot, a 10-year window was used to analyze law firm metrics, focusing on compound annual growth rates (CAGR) of revenue per lawyer (RPL) and profit per lawyer (PPL).

The top 25% of firms with the highest CAGR in both RPL and PPL were identified as Dynamic law firms, while the lowest 25% were classified as Static law firms. This methodology allowed for a comparison between these populations and the average law firm’s performance since the market fully recovered from the effects of the Global Financial Crisis in 2013. While the report primarily draws information from 成人VR视频 Financial Insights, it also draws insights from additional research data from 成人VR视频 Market Insights, such as more than 2,000 interviews that were conducted with corporate general counsel on a global level.

The Dynamic firms in this iteration managed an impressive compound annual growth rate of 3.9% in revenue per lawyer, or the equivalent of 3.9% growth year-after-year over the course of a decade. In comparison to the 2.6% CAGR of the average law firm, the Dynamic subset鈥檚 results are clearly impressive.

Yet, it is in profit per Lawyer that the Dynamic law firms proved their mettle, outstripping the average firms鈥� 2.5% CAGR with an awesome 5.7% year-after-year march, outperforming the average firm in every year since 2014. The report highlights how these Dynamic law firms have employed a multitude of ways to enhance growth prospects as well as analyzing the ability of these firms to adapt and respond to changes in the legal market in order to remain successful.

Finally, the Dynamic Law Firms Report offers valuable insights into the strategies and behaviors that contribute to such market-leading growth. By understanding these findings and applying the suggested lessons, law firm leaders can enhance their firm’s growth prospects and effectively respond to evolving market dynamics.

The report鈥檚 emphasis is on fostering agility, making strategic investments, adapting to changing market demands, and prioritizing client-centric approaches 鈥� all valuable lessons for law firm leaders of any sized firm.

You can download a full copy of the 成人VR视频 Institute鈥檚 鈥淒ynamic Law Firms Report鈥� by filling out the form below:

For example, the report shows that those firms we label Dynamic Law Firms 鈥� those that had the highest compound annual growth in revenue per lawyer, overall firm profits, and average firm profit margin 鈥� have been investing more heavily in their people. This is shown not only by higher profit per equity partner payments, but in the form of recruiting as well as salaries and benefits for support staff. Also, these firms have created a culture within the firms themselves that fosters collaborative cultures, embraces change, and adopts practices like alternative fee arrangements more readily than their peers, according to lawyers within Dynamic firms.

You can here.

Simply put, this combination of higher investment in people and a more engaging culture has resulted in a group of law firms at which lawyers want to stay and where market-leading growth is part of the reward.

While this is roadmap to success become vivid when it鈥檚 in the form of data, it鈥檚 another issue entirely to put the theoretical into practice. For that, a boots-on-the-ground perspective can help provide a real-world grounding into how best to approach the goal of generating new growth within a law firm.

聽available on the聽听肠丑补苍苍别濒,听Bill Josten, manager of legal industry and law firm content at 成人VR视频 Institute, recently chatted with , Chief Financial and Administrative Officer at Baker Donelson. In this podcast, Staggers shares his perspective on the findings of the Dynamic Law Firms Report, and whether and how law firms can model similar success within their own businesses.

While the success of Dynamic Law Firms is undergirded by strong data, Staggers suggests the idea of replicating such success across the legal industry may not be so clean cut.

In the podcast, Staggers shares his perspective on the steps he would take to attempt to spark growth within a struggling law firm and to maintain and continue to build upon the success achieved in a high-growth practice. The podcast also delves the importance of the current hot market for legal talent and its impact on law firm culture as Staggers shares his thoughts on the sustainability of current compensation and hiring practices, particularly as firms hire individuals in more remote markets at premium salaries. 鈥淭here鈥檚 a potential that you feel like you鈥檙e on an island and you鈥檙e just being fed work,鈥� Staggers observes in the podcast. 鈥淒oes that really mean it鈥檚 an investment for you to provide additional client value and build your career?鈥�

As to the question of replicating the success of Dynamic Law Firms across the legal industry, Staggers suggests the idea may not be so clean cut. Indeed, as he sees it, some firms may not fare as well in an analysis like the Dynamic Law Firms Report because their definition of growth varies from how the report defines it. For example, a firm that is focusing on building out a stand-out group of attorneys in core practices or improving the profitability of those practices may not show much in terms of top-line revenue growth, but their overall profitability and reputation may be greatly enhanced by their efforts. Similarly, a greater focus on delivery of client value may not fit within the rubric of the report, as a client鈥檚 perception of value from a particular firm is something that is hard to gauge within the confines of certain data.

Overall, as Staggers鈥� comments in the podcast illustrate, the key to leading a growing firm comes down to intentionality 鈥� whether the question being answered is how to transition to hybrid work or how to cultivate firm culture. And the idea of a law firm being intentional in a strategic plan that moves the firm forward might be the best way to sum up the 2022 Dynamic Law Firms Report.

While the findings of the report were various, one topic we didn鈥檛 dive into was market segmentation, specifically how our populations of Dynamic and Static law firms performed against their peer firms among their respective segments. When we dived into the numbers, what we found is that Dynamic law firms not only outperform the average of all law firms, but they also outperform their respective segment averages, with some particularly stark differences in key areas.

The Dynamic Law Firms Report ranks all of the law firms within the program according to a weighted index of three key growth statistics: revenue per lawyer, total profit, and profit margin. The top 25% of law firms on this list became the Dynamic subset. In contrast, the bottom quartile of firms are identified as Static firms. Typically, this report redraws the populations with every iteration, so the Dynamic firms we analyze in one year are not the same firms we analyze the next. With this report, however, we continued following the same firms from our previous report, identified at the end of 2019, analyzing how previous success impacted future performance during the pandemic crisis period.

The results we found were promising. Dynamic law firms, those who achieved the highest positive growth between 2017 and 2019, continued to expand, while the Static firms (those on the lowest quartile of growth in that period) saw more mixed results.

While the report went into detail about the way these firms were organized, the investments they were making, and more, there was one aspect the report only mentioned in passing. The firm populations were not necessarily equal. One of the regular findings of the Dynamic Law Firms Report is that scale matters.

Large law firms, able to leverage economies of scale, are often able to keep pace or exceed the growth of smaller law firms despite requiring larger absolute gains for the same percentile growth. The result is that the Dynamic and Static populations are comprised of different components. In our latest report, for example, Am Law 100 firms made up 54.9% of the Dynamic firms鈥� population, and just 22.2% of the Static firms鈥� population.

To control for possible segmentation impacts, we compared every firm鈥檚 compound annual growth rate (CAGR) from 2019-2021 to the average growth of their segment. Then, we calculated the difference between those numbers on a percentage point basis. We refer to this metric as the Segment Deviation, where a positive deviation indicates that the firm grew more than their segment average while a negative value indicates lower growth than the segment average. (For example, a Segment Deviation of 1.2 would indicate that the group grew 1.2 percentage points more than their segment average.)

When applying this metric to the Dynamic Law Firms Report, the results were stark. First of all, we found that Dynamic firms exceeded their respective segment averages in every Key Performance Measure. In some cases, the advantage was as small as 0.2 percentage points but in others it was as high as 1.9 percentage points. Conversely, Static law firms on average underperformed relative to their segments. While worked rate growth for both Dynamic and Static law firms tracked closely with their segments, there was a notable gap between the two populations in terms of overall legal demand. Dynamic law firms achieved demand growth far in excess of their segment averages.

Another important finding relates to growth in the number of lawyers within a firm. Unlike many aspects of large law firms, lawyer growth is one of the few metrics where the benefits of scale are small or even non-existent. In-fact, our data indicates that the largest law firms are having greater difficulty growing their talent recently, with the Am Law 100 averaging lower lawyer growth than the all-firm average in every quarter of 2021.

Dynamic firms鈥� Segment Deviation of 1.1 percentage points shows just how well these firms are navigating the talent wars. In the report itself, we spent a considerable time analyzing how Dynamic law firms were positioning themselves as a destination for talent given their approach to innovation, cooperation, and growth opportunities. These lawyer growth figures seem to indicate that the strategy is paying dividends.

In summation, when segmentation is taken into account, Dynamic law firms managed to exceed their segmentation by an impressive amount, especially in terms of demand growth, thus backing up our earlier findings that these firms are seeing true growth. Static firms, in contrast, underperformed not just the market average, but even the average law firm within their respective segments, further highlighting that their success in growing profit per equity partner is due to strategies which focus on factors other than improvement and investment.

This annual report is one of the few reports in the legal landscape that focuses exclusively on the thoughts and opinions of the allied business professionals who are leading midsize and large law firms 鈥� those professionals occupying the finance and operations roles within law firm leadership. Without the duality of purpose that often comes from trying to manage a law firm while also maintaining a book of client business, these firm leaders bring a different perspective to the strategies of running a law firm.

Unsurprisingly, last year鈥檚 survey found that many of these business professionals were concerned about the broader economy and the impact it may have on future firm profitability. But after many firms posted strong results at the end of 2020, and with 2021 shaping up to be another banner year for many law firms, their concerns over the impact of economic shifts has abated.

Instead, this year鈥檚 survey found that concerns related to talent have skyrocketed into the front of firm business leaders鈥� minds. In fact, four of the top five areas rated as 鈥渉igh risk鈥� to future firm profitability relate directly to talent considerations. The top five high risk areas identified by respondents were, in order:

1. 1. 1. 1. Lawyer recruitment and retention
         2. Poaching of staff by competitors
         3. Associate salary increases
         4. Underperforming lawyers
         5. Competition among law firms over fees.

And concern over these issues is being borne out in market realities.

According to the most recent 成人VR视频 Peer Monitor Index report, for example, law firms have been experiencing heavy turnover among their professional staff, particularly among associates. Associate salary increases, which have become strikingly common in 2021, have driven record growth in law firm direct expenses. And per lawyer productivity 鈥� when compared to 2019 (the last 鈥渘ormal鈥� baseline year) 鈥� continues to slip.

You can download a copy of the here.

Yet despite these risky areas, law firm business leaders remain bullish on their firms鈥� prospects. A majority of respondents said they expect moderate to high growth in nearly every key metric of law firm profitability and have similar expectations for demand in nearly every practice area. Perhaps this buoyant mood reflects a more general sense of optimism that the waning of the pandemic-induced struggles from the past 18 months or so will lead to better days ahead.

As firms prepare for what the future will bring, many firm business leaders report that they will be re-evaluating their firm鈥檚 use of real estate, both to accommodate a hybrid working model and to continue to take advantage of some of the expense reductions experienced in the past two years.

Lateral hiring and increasing billing rates will also be key strategies many firms will likely employ, along with a greater emphasis on improving efficiency through innovative technology.

The strategies around technology are worthy of a closer examination. For the first time, this survey bifurcated the question of greater use of technology to explore the portion of use that is designed to cut costs, as opposed to the portion of use for purposes other than to cut costs. Thus, we learned that more firms said they plan to increase their use of technology for purposes other than to cut costs.

So, in what areas will tech be leveraged if not to cut costs? Looking at the firms whose leaders said they plan to either upgrade or purchase tech solutions, most uses relate to either facilitating new ways of working or enabling greater efficiency in producing work product. Firms are most likely to look at purchasing or upgrading technology for remote working, financial management, internal collaboration and client portals, market analytics, legal project management, and eBilling. On the whole, firms are most likely to upgrade their technology as a means of providing better value to clients.

Indeed, technology also provides the most fertile ground for potential law firm outsourcing, as cloud and server infrastructure, electronic discovery, and IT support were among the areas firms were most likely to either be outsourcing currently or looking to outsource in the future.

The report also details findings relating to firms鈥� plans for potential expansion domestically, concerns over firm culture brought on by managing a workforce split between in-person and remote workers, and how firms are trying to drive collaboration in an age of hybrid workforces.

鈥淔airy tales are more than true: not because they tell us that dragons exist, but because they tell us that dragons can be beaten.鈥�

鈥� Neil Gaiman, Coraline

About a year ago, 成人VR视频 released a new version of its Dynamic Law Firms Report, which sought to examine the top quartile of law firms in its Peer Monitor program in order to identify which aspects had made some firms more successful than their peers. We鈥檝e been watching these firms throughout the pandemic, and this coming spring we will release another full report.

Out of curiosity, we checked in on how these firms are doing midway through 2021. What we have found is very much like a fairytale, though not necessarily one with a happy ending for everyone.

The Dynamic Law Firms Report ranks all of the firms within the Peer Monitor program according to a weighted index of three key growth statistics: revenue per lawyer (RPL), total profit, and profit margin. The top 25% of law firms on this list became the Dynamic subset. In contrast, the bottom quartile of firms was identified as Static firms. So, what has happened to these firms over the last few months?

Act I

In early 2020, the threat of the pandemic appeared to be a black dragon which threatened to swallow law firms whole along with the rest of the economy. Firms found themselves thrust from crisis to crisis. Legal demand seemed set to plummet into an abyss; yet by the end of the summer of 2021, our all-firms average shows most key performance indicators (KPI) are positive, law firms are hiring, and profit margins are up.

Comparing Q2 of 2021 to Q2 of 2019 (the last normal year and a good benchmark for actual growth), both Dynamic and Static firms had solid increases in their baseline metrics. Dynamic firms grew their RPL by 12.5% on average 鈥� a development achieved through two cumulative years of rate increases and substantial demand growth in corporate practices. These firms also managed to achieve a 15.2% growth in their profit margins over 2019 levels, the result of substantial cuts in expenses and cost savings from transitioning to a work-from-home model.

You can see the digital version of the 2022 Dynamic Law Firms report here.

Even Static firms achieved 7.8% growth in RPL and a corresponding 12.1% growth in their profit margin. The crowning achievement still belongs to Dynamic firms, whose cumulative deeds combine to achieve 29.3% growth in total profits 鈥� 10.1 percentage points higher than Static firms鈥� gains.

By the end of Q2 2021, all of Dynamic firms鈥� KPIs were up when measured against Q2 2019. Worked rates had grown almost 10% (with two years of rate increases included in this figure), and fees worked were up 13.7%.

Dynamic law firms also seem to be looking to continue their success. In a hot labor market, these law firms are making big moves, growing their headcount when new blood is hard (and expensive) to find. In nearly every metric we鈥檙e tracking, Dynamic firms are either maintaining their lead over their competition or pulling further ahead. Corporate and real estate practices in particular have seen so much dominance by Dynamic firms that we will soon publish a separate article on their performance.

It鈥檚 a fairytale ending. The dragon appears to have been slain, riches rain upon the heroes, everyone lives happily ever after鈥� except this story may not be finished.

Act II

In many classic fairytales, the story does not end when things appear to be wrapping up. There is a final twist, a final challenge. In our case, the dragon may only be mostly dead. To see this, you only need only to dive more deeply into the Static firms.

The above graph measures full-time equivalent (FTE) growth from January 2020 levels. When the pandemic hit, both Dynamic and Static firms began reducing the number of equity partners in their ranks. Static firms cut their equity partners down 3.5% from their January level, while Dynamic firms only cut down 1.4%. Dynamic firms returned to pre-pandemic levels at the beginning of 2021, yet Static firms are still below their January 2020 equity partner levels as of June.

Look again to the KPI measurements. Worked rates for Static firms are up 8.3%, but fees worked is at a lower level, growing only 6.6%. This is because demand, measured by the hours a firm worked, is down 3.3% on average for Static firms. Indeed, Static firms have witnessed greatly reduced demand in almost every practice during Q2, with litigation, bankruptcy, and tax each seeing billable hours contract by 9% or more on average when compared to 2019 volumes. If anything were to happen to corporate or real estate practices (the only major categories with any sign of growth), Static firms could be thrown once more into crisis.

In the last few months, the labor market has tightened and even with skyrocketing salaries firms are having trouble finding talent. Multiple economic threats still loom, COVID-19 is by no means gone, and the specter of cheap credit being replaced by high inflation persists. Any of these threats could very well jeopardize that essential corporate work 鈥� the very practice that is enabling Static firms to hold onto some 2019 levels.

This fairytale is not over, the dragon yet lives. This time, Static firms may have to slay it themselves.