Key points:
- Revenue growth reached 11.9% in the first nine months of 2024, fueled by a 9% increase in lawyer billing rates.
- Generative AI investments are transforming operational models but require robust governance.
- Industry consolidation continues, with Am Law 1-50 firms seeing the strongest demand growth.
The 2025 Citi Hildebrandt Client Advisory highlights key performance metrics and strategic directions for law firms. Revenue increased by 11.9% compared to the same period in 2023, driven by a 3.2% rise in demand and a 9% increase in billing rates. Practices such as litigation, regulatory compliance, and bankruptcy led the demand surge, while transactional demand was uneven across segments.
Expense growth mirrored the revenue uptick, with compensation costs rising by 6.7%, driven by headcount normalization and salary increases. Operational expenses grew even faster, up 8.2%, reflecting investments in office infrastructure, technology, and talent upskilling.
Generative AI: The Game-Changer
Generative AI remains at the forefront of industry transformation. While firms spent less than 1% of their revenue on Gen AI in 2023, the report predicts substantial growth in AI-related investments. Firms face challenges such as integrating AI into workflows, maintaining data security, and ensuring consistent output quality. Despite these hurdles, 49% of firms are optimistic about Gen AI's long-term impact on operational efficiency and client service delivery.
Consolidation and Growth Trends
Consolidation within the industry continues, particularly among smaller and Second Hundred firms. Larger firms have leveraged lateral hiring and promotions to expand their market share. The report notes that Am Law 1-50 firms achieved the highest productivity growth at 2.9% during the first nine months of 2024.
Practice areas expected to grow through 2026 include litigation, regulatory compliance, and bankruptcy, with emerging opportunities in healthcare, energy, and artificial intelligence-related legal work. Firms are also focusing on expanding their private equity and funds management practices.
Operational Priorities
Improving billing processes, shortening collection cycles, and enhancing realization rates remain top operational priorities. Firms are increasingly adopting alternative fee arrangements (AFAs), with 22.3% of revenue projected to come from AFAs in 2024.
