• Am Law 50 firms are widening the gap in profitability and growth, driven by increased demand and revenue.

• Smaller firms face increasing challenges as the legal market continues to segment.

• Segmentation continues to accelerate, creating a “vicious cycle”  in the industry.
  

Am Law 50 firms are extending their lead over the rest of the legal market in 2024, demonstrating robust revenue growth and profitability. While the entire legal sector is seeing a strong financial year in 2024, Am Law 50 firms’ scale and resources give them an edge in attracting top-tier clients and talent, according to Citi’s Global Wealth at Work, cited by Law.com.

Not a new trend: Gretta Rusanow, head of advisory services for the Citi law firm group, said Am Law 50 turning in a stronger performance was “not a new trend,” but the largest firms’ outperformance in a few areas is noteworthy: 

• Demand growth: The top 50 law firms led the way in demand growth through the first half of the year.

“What stood out particularly to me in the Am Law 50, at this stage of the year, they are considerably outpacing the other Am Law segments at that 3.3% [demand] growth, and have only grown lawyer head count 0.8%,” Rusanow said. In contrast, Second 50 firms saw demand up 2.7% and Second Hundred saw it increase 2.1%, according to the Citi research.

• Revenue growth: Am Law 50 firms more than doubled the revenue rate growth produced by the Second 50 firms.

Top 50 firms saw a 14.3% revenue increase, while Second 50 firms increased it by 5.5% and Second Hundred firms notched a 7.8% increase, according to Citi.

Why this matters: The demand and revenue growth has allowed Am Law 50 firms to see a higher increase in productivity at a time when overall lawyer productivity is declining, with the average number of hours billed by lawyers dropping from a peak of 138 hours per month in Q2 2007 to just 115 hours per month by the fourth quarter of 2023, according to Thomson Reuters.

Why it’s risky: This trend is deepening segmentation in the sector, particularly among the top 20 most profitable firms. 

This has caused a widening gap between elite firms and the rest of the industry which cannot keep up with bigger firms’ compensation practices, billing rates, talent acquisition and client retention strategies.

“It is a bit of a vicious cycle for the rest of the industry to observe. It allows these elite firms to continue to pull away, as long as they continue to focus on those higher client value opportunities,” Kristin Stark, a principal at Fairfax Associates, told Law.com.