Law Technology Today From the ABA Legal Technology Resource Center
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The 80 percent of solo and small firm practitioners that make up the legal landscape in the United States have been living in a data vacuum. While Big Law firms have long had access to in-house Business Intelligence units to advise them on everything from billing rates to practice area performance, solo/small attorneys have, to this point, been forced to rely on sporadically produced and inherently biased surveys or anecdotes swapped at networking events. Any lawyer should be able to tell you about the flaws in anecdotes.
The just-released Legal Trends Report looks to address this knowledge gap, providing data-driven insight to solo and small firm lawyers that will help guide business decisions. Leveraging unbiased usage data from over 40,000 Clio customers—including $60 million in billing data—the report informs law firm leaders on some of the most common questions around billing rates and firm structure, including:
- Average hourly billing rates by state, practice area, and fee structure
- State rankings for hourly rates adjusted for cost-of-living
- Data on key performance indicators such as the utilization rates, realization rates, and collection rates for law firms
Where do Lawyers Earn the Most?
Self-reported hourly billing information isn’t always 100 percent accurate—when self-reporting data, lawyers have a tendency to skew towards responses that portray their firm in a more positive light.
When aggregating actual usage data from across the U.S., the Legal Trends Report found that the average hourly billing rate across the U.S. was $232. The states that ranked highest for hourly billing rates were D.C., New York, and Connecticut—however, when adjusted for relative purchasing power, the best states to open a new law practice appear to be Nevada, Connecticut, and Illinois.
How Many Lawyers Should my Firm Employ?
Among the more surprising findings of the study, the average utilization rate (the number of hours in a day devoted to billable activities) was a shockingly low 28 percent. However, that number dramatically rose as more attorneys were added to a firm, largely disproving the notion that additional attorneys cannibalize existing work. However, the utilization rate seems to plateau around 30 percent once a fifth attorney is added to a firm, and doesn’t see another marked increase until a tenth attorney was added. Overall, the study revealed solo law firms have it the hardest, with a utilization rate just half that of mid-sized firms of 12 lawyers.
Where Do We Go From Here?
The Legal Trends Report paints a vivid picture of (a segment of) an industry in transition—but with the information contained within, law firm leaders can begin to form an action plan incorporating geography, economics, and seasonality that will help to prepare their firms for whatever comes next.
