Clio, the legal practice management trendsetter that has spread like wildfire through the legal marketplace, has released its 2023 Legal Trends Report. Below are our key takeaways.
Since 2016, there has been a staggering increase in workforce productivity within the legal industry.
The average legal professional earns much more for their firm by carrying a heavier caseload and generating more billable hours. Firms are also collecting an outsized return on that work through administrative efficiencies and capitalizing on the work of lawyers and staff.
On average, legal professionals are working over 25% more cases compared to 2016 and recording 35% more billable hours.
In addition to increasing billables, law firms are collecting a higher proportion of revenue for every hour worked.
In total, legal professionals are billing and collecting over two and a half times more than in 2016.
After controlling for increases in hourly rates, the average legal professional still earns nearly three-quarters more revenue for their firm than they did in 2016.
Increases in law firm utilization, realization, and collection rates explain this.
A law firm’s utilization rate measures how much of a lawyer’s eight-hour day gets put towards billable work.
Since 2016, lawyer utilization rates have significantly increased from 28% to 37%.
This increase represents nearly three-quarters of an hour of billable time added for every day worked.
Two issues in law firms often contribute to lower utilization rates: (1) lawyers may be overwhelmed with administrative and business development tasks, reducing their ability to spend time on billable work, and (2) law firms may struggle to find enough clients to keep their lawyers busy.
Past research shows that 48% of a lawyer’s non-billable time gets put toward administrative tasks like office administration, generating and sending bills, and collections.
Another 33% of non-billable time gets put into business development.
Realization rates measure how much of a law firm’s billable work actually gets included in client bills. Since 2016, realization rates have increased.
Law firms are invoicing 12% more of their billable hours — adding a significant amount of revenue potential for every hour of billable time worked.
Collection rates measure how much of a law firm’s bills get paid by clients. Once billable work is successfully tracked (utilization) and invoiced (realization), it finally becomes revenue to the firm when it is collected. Without collection, there is no revenue.
Since 2016, collection rates rose from 86% to a high of 90% in 2021 but fell slightly to 89% in 2022.
Collection rates are expected to remain at this level through the end of 2023, amounting to a total net increase of only 3% compared to 2016.
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