The country’s 100 largest law firms posted revenue growth of 6% in 2023 as higher prices for lawyers’ time and a slight increase in demand more than made up for a broad slowdown in deals, a Wells Fargo & Co. survey found.
The average profits per equity partner at the 100 firms increased more than 5% from 2022, Wells Fargo said.
The revenue gains last year were mostly driven by higher billing rates. The 100 largest law firms raised their hourly rates at a record, nearly 9%, in 2023, Wells Fargo said. Demand was up by less than 1%.
The survey by the bank’s legal specialty group is the first of three major year-end financial barometers for the Big Law market. Reports from Citi Private Bank and The American Lawyer, which are yet to be released, are expected to show a significantly healthier year for Big Law compared to 2022, which was a relatively rough stretch for lawyers.
While the mergers and acquisitions and capital markets transactions that typically power Big Law results failed to register significant growth in 2023, Wells Fargo said there was “strength” in counter-cyclical practices such as litigation, restructuring, antitrust, and intellectual property.
Law firms have even rosier expectations for 2024, said Owen Burman, managing director of the Wells Fargo legal specialty group. They anticipate demand—total hours billed—rising by around 3%, he said.
“We think that’s achievable, because the drivers from 2023 are still in place,” Burman said. “Firms are still seeing good demand growth in restructuring and other counter-cyclical practices. But at the same time, we have a much more likely scenario of transaction markets coming back.”
Firms have some wind in their sails as 2024 begins. Inventories, or bills waiting to be collected, grew nearly 11% at the 100 largest firms, the survey said.
“There is a belief that all facets of the market should be showing some significant improvement this year versus 2023,” Burman said. “We see high single digit revenue growth for the industry in 2024. So it’s a pretty good outlook.”
Wells Fargo surveyed more than 130 law firms, including 70 of the 100 largest by revenue. Another 35 that were surveyed ranked between the 100th and 200th largest.
Firms have struggled to increase expenses in recent years, driven by associate salary increases, technology costs, and inflation. But they made some progress in 2023, with expenses up only 6% compared to 8% in 2022, Wells Fargo said.
Big Firms have also tried to tame bloated payrolls resulting from fewer associates than normal leaving firms. With low attrition, lawyer headcount at the largest firms rises 3% in 2023, down from 6% growth in 2022.