Seven times since 2016, Thomson Reuters has conducted a survey on the state of small law firms in the US, and each time it found that small firms had made virtually no progress on one of their biggest challenges, which is who spend too much time in administrative tasks excluding the practice of law.
As Thomson Reuters itself says, “Past editions have often been a case of ‘the more things change, the more things stay the same’.”
But this year, in the eighth edition just released the State of small US law firms report by the Thomson Reuters Institute, the survey finally shows some progress among firms with 29 lawyers or fewer. This year, the percentage of time small business lawyers spend practicing law has increased from 56% (where it had been for two years) to 61%.
“Small business lawyers may have finally broken out of the recurring and frustrating pattern we’ve seen in previous years where they’ve struggled to spend more time practicing law and less time dealing with administrative tasks,” the report says. “This is understandably of critical importance because it is literally how small businesses and their lawyers make their money.”
While the five percentage point increase may not seem significant, the report notes that over the course of a year, this could add up to approximately 150 additional billable hours or more.
Measures of success
Accompanying this increase in time spent practicing law is an increase in the percentage of attorneys who consider their firms to be “very successful.” Last year, 26% of lawyers characterized their firms this way, but this year, that rose to 30%.
However, the number of lawyers who consider their firm to be “successful” fell, from 64% to 57%, and the number who consider themselves “neither successful nor unsuccessful” increased from 9% to 11 %.
Of course, this raises the question of how companies define success. Again, the main ways companies measure their success have not changed over the years of this survey. Key measures of success include:
Overall benefits (27%). Degree of customer satisfaction (24%). Global revenues (16%). Reconciling work/family life (15%). Repeat business (9%). Profits per member (3%).
Challenge Control costs
While the survey found progress among smaller firms in addressing the challenge of time spent on administrative tasks, it found that a growing number of attorneys cited a new challenge: controlling costs and expenses.
In the survey two years ago, only 56% of companies cited cost control as a major or moderate challenge. This year, that number rose to 72%. That makes it the second-biggest challenge lawyers in this year’s survey say they face, behind the perennial need to reduce time spent on administrative tasks.
Higher billing rates, more technology
What changes have small businesses made during this period that may have driven these changing perceptions? It turns out that the biggest change companies have made over the past three years has been to increase their billing rates.
In 2021, less than half of small businesses increased billing rates, the survey found. By 2022, the figure had risen to 59%. This year it rose again to 64%, meaning almost two-thirds of small businesses increased their rates.
The next most common change among small businesses was the adoption of new technologies. This year, 42% of companies adopted new technologies, compared to 41% last year and 50% in 2021.
When shopping for new technology, attorneys cited software for case management, legal research, and billing and invoicing among their top needs.
Little use of generative AI
One type of technology that small businesses aren’t investing heavily in yet is generative AI. The survey, which was conducted in August, found that 72 percent of small business attorneys have heard of generative AI, but haven’t used it. Just over a quarter say they don’t fully understand generative AI. Ten percent had never heard of generative AI.
So far, small business lawyers also don’t see AI as a threat to their practices, the report says. Less than 15% believe it poses a significant threat even three years from now, and over the next year, 85% believe it poses only a minimal or no threat.
Still, 40% of small business lawyers believe generative AI presents a major or minor opportunity to automate processes within their practices. Thirty-five percent say it doesn’t present that opportunity, and a quarter aren’t sure.
“While there is still much uncertainty, we are increasingly confident of one thing: whether one believes that AI represents an opportunity or a threat, both are likely to be right,” the report concludes.
“Anyone who sees AI as an opportunity will be more likely to undertake deeper exploration of its growing capabilities and spot new avenues for adoption and even revenue generation. Those who see it as a threat they are more likely to avoid it and risk being left behind in the market.”
Boost marketing
One area where small businesses have stepped up their game is marketing, according to the report. In 2021, 84% of businesses said they were currently running marketing or advertising campaigns. This year, it rose to 93%. At the same time, the number of companies spending 3% or more of their budget on marketing rose from 52% to 60%.
Where do companies spend their marketing dollars? The most common marketing spend (63%) is for “networks,” which the report does not define.
Far fewer businesses say they spend money on other forms of marketing, such as social media marketing (38), search engine optimization (38), free listings in online directories (31), blogs and e-newsletters ( 30%). ), and video marketing (8%).
A note of caution
The report ends with a cautionary note.
While this year small law firms have been able to “move the needle” and make significant progress on their long-held primary goal of spending more time on advocacy and less time on administrative tasks, they cannot rest on their laurels. the laurels, especially in face. of the rapid advancement of AI and ever-changing customer expectations.
“It is critical that small businesses maintain the gains made this year by spending more time on advocacy and less time on administrative tasks. Avoid falling back into old habits or losing focus due to distractions or diverting attention to other goals will be key.”
LawSites coverage of past survey years:
Survey 2022
Survey 2020
Survey 2019
Survey 2017
Survey 2016
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