Clio Legal Trends Report Anticipates Stress in a Strong Legal Marketplace  

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Clio Legal Trends Report Anticipates Stress in a Strong Legal Marketplace  

This week, the legal technology company Clio released its annual Legal Trends Report, which is an industry benchmark for workplace and economic trends in the legal industry.

The survey included 1,134 legal professionals, 458 professionals from other industries, and 1,168 consumers in the U.S. in April and May 2022, as well as aggregated and anonymized data from tens of thousands of Clio’s product users to determine how and where these legal professionals are working.

While high demand for legal services has meant significant financial opportunities for many firms, sustained inflation and the risk of a recession on the horizon means the legal industry is likely to see more firms competing for fewer clients, according to the report.

The Legal Trends Report aims to equip lawyers and firms with the consumer and employee preferences they need to thrive in these difficult times. Or, as Clio CEO and Founder Jack Newton said during the annual Clio Cloud Conference, to become an “antifragile law firm.”

Higher demand = billable hours up

The surging demand for legal services in 2021 generated strong financial performance and an increase in headcount and compensation, the Clio Legal Trends Report said. The rebound in legal services even led to some firms turning down work or raising rates. However, with the threat of a recession, past gains don’t guarantee future success.

Compared to the pre-pandemic baseline of 2019, the average caseload was up 10% from March 2021 to August 2022, and billable hours were 22% higher. This means lawyers are capturing more billable time or taking on cases that require more work or more time to complete.

Over the same period, the number of hours billed to clients was up by an average of 28% compared to 2019, and the average collected revenue was up 31%, meaning every hour of legal work has become more valuable to firms.

Lawyers, however, are spending just one-third of their time on billable hours, up slightly from previous years.

Interestingly, these utilization rates—or the number of hours put toward billable work as a portion of an assumed eight-hour day—have increased 18% over the six years since Clio has been publishing data, reaching 33% in 2022.

Clio Legal Trends Report Utilization rate
Source: Clio Legal Trends Report

While realization and collection rates have remained steady during the pandemic, the average law firm collects only $748 for every $1,000 of billable work.

This means these firms could collect up to 34% more revenue by optimizing their realization and collection rates. Those who don’t are missing a massive opportunity, according to the report.

Clio Legal Trends Report Realization and collection rates
Source: Clio Legal Trends Report

Fees not keeping pace

The rate of inflation is outpacing the Billable Hour Index, which could put significant pressure on law firm economics in the coming years, the Clio Legal Trends Report said.

The Consumer Price Index (CPI) has increased at a faster pace than firm rates since June 2021. Firms that haven’t increased rates to match inflation may be capitalizing on the increased demand for services or feeling pressure to remain competitive.

Given the current gap in rates relative to inflation, industry-wide data suggests the average lawyer could increase rates by 3% to keep up with recent changes in the CPI relative to 2019.

However, this approach could backfire. Lawyers should be mindful that clients are struggling with inflation too and may be turned off by increased rates.  

The ‘Great Resignation’ hits law

In the 12 months before April 2022, nearly one in five lawyers left their law firm and 9% reported they planned to leave a firm in the next six months.

While compensation is still crucial to recruiting and retaining attorneys, Clio found a significant shift in attorneys prioritizing issues of workplace culture, which made up five of the top six reasons lawyers cite for leaving firms.

Clio Legal Trends Report Better pay, work-life balance, and job dissatisfaction are why lawyers move jobs
Source: Clio Legal Trends Report

Workplace preferences

Lawyers want workplaces that offer flexibility in terms of when and where they work. Almost half of attorneys said they preferred working from home and 45% said they would rather meet with clients virtually.

This preference seems to be fine with clients, according to the report, with 25% more clients (35% compared to 28%) saying they prefer virtual meetings over in-person meetings. The rest indicated no strong preference either way, meaning they’re adaptable, the Clio Legal Trends Report said.

Seventy-six percent of legal professionals want to choose which hours of the day they work and 69% prefer to work throughout the day rather than adhering to a traditional workday.

However, non-traditional schedules can impact attorney health and well-being. Importantly, lawyers who worked traditional hours reported better job satisfaction, relationships with clients and colleagues, mental and emotional well-being, and revenue contributed to the firm than those who worked outside of regular hours.

Clio Legal Trends Report Lawyers working regular hours see more job satisfaction
Source: Clio Legal Trends Report

What’s important to clients? Reviews.

To help firms prioritize what’s important to clients, Clio included a hireability study in this year’s survey of 1,000 U.S. consumers.

Reviews dominated other considerations when it comes to hiring decisions, followed by a firm’s location and response time. One thing that doesn’t seem to have a major impact on a hiring decision is whether an attorney works from home or in an office.

Clio Legal Trends Report Reviews continue to have the largest impact on hiring decisions
Source: Clio Legal Trends Report

While billing rates didn’t rank as high as some other considerations, most consumers (67%) said they wanted the option to pay for services via flat fees. However, Clio found that almost all firms (97%) continue to offer hourly rates and only 36% provide flat fee options.

Clio Legal Trends Report Clients want more billing options
Source: Clio Legal Trends Report

Offering multiple payment options can ease the burden of a large, one-time payment and increase the affordability of legal services. Most clients are open to a range of options; for instance, 70% want the option to pay a lawyer via a payment plan, 65% want the option of legal insurance, and 53% want the opportunity to crowdfund their legal bills.

Clio recommends that firms build resiliency into their operations by finding a balance between the needs of their clients, the industry, and their employees. This balance requires firms to be open to innovation, to find creative solutions to challenges, and to use data to drive decision-making.

To read the full Clio Legal Trends Report, click here.

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