• Law firm profits rose 11.2% in Q3 2024, spurred by increased demand, productivity, and higher billing rates.

• The Law Firm Financial Index (LFFI) hit 71, marking its second-highest point of all time.

• A cautious outlook for 2025 suggests potential challenges to continued profitability growth.

Law firms experienced substantial growth in the third quarter of 2024, recording an 11.2% rise in profits compared to Q3 2023, according to the latest report from Thomson Reuters' Law Firm Financial Index (LFFI). 

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 Q3 index score of 71 is the second-highest mark in the index’s 18-year history, only behind the peak of 84 set in the second quarter of 2021, according to a Law.com report.

• Relative to 2021, though, the growth is healthier and more balanced now, said Bill Josten, strategic content manager for Thomson Reuters, which publishes the LFFI.

The report attributes this profitability increase to gains in demand, billing rates, and productivity, alongside relatively moderate growth in full-time equivalents (FTEs).

Rising Demand and Billing Rates Fuel Profits

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.

In Q3 2024, demand for legal services increased by 3.6%, and worked rates—the negotiated billing rates between firms and clients—climbed by 6.5% year-over-year. 

Productivity, which had been mired in a long-term decline, increased again, by 1.7%, even as firms grew full-time equivalents by 2%.

These combined forces strengthened the bottom line for many firms and reflected broader market trends favoring corporate and litigation practices. 

• Demand for litigation grew 4%, making it the fastest-growing practice area.

• Corporate demand was up by 2.6%.

• Mergers and acquisitions, typically sensitive to economic fluctuations, saw a modest but positive rise of 0.8%.

• IP work was the only practice area to see a slight decline in demand, slipping by 0.2%. 

The LFFI report also notes that direct expenses (up 5.7%) and overhead expenses (5.3%) were noticeably up, but concluded those were “the minor cost of doing business” when weighed against firms’ other financial gains.

Looking Ahead: A Cautious Outlook for 2025

The report ends with a note of caution—that it “is unlikely that law firms’ climb will continue much higher in light of the latent challenges that might erupt in 2025.”

According to Josten, questions remain over the incoming Trump administration’s policies, how inflation will adjust, and how the U.S. Federal Reserve will set interest rates. It may also be difficult for law firm financial metrics to get much higher, he said.

“Now nothing is impossible. But as we look at the indicators, we’ve seen several years of really, really strong performance. We’d love to see that continue,” Josten said. “But I don’t know how much larger some of these numbers can get.”