Thomson Reuters: Law Firms Roll Out Aggressive Rate Increases as Productivity Declines
Law firms close first quarter with a boost, but long-term uncertainty looms
Thomson Reuters, a global content and technology company, issued a new report today that highlighted a significant rate growth employed by law firms while demand was up only 0.5% and productivity slipped 2.4%. According to the Q1 2025 Thomson Reuters Law Firm Financial Index (LFFI), powered by Financial Insights, rates and demand may currently appear solid for law firms, but multiple challenges are emerging.
As firms traditionally update their rates in the first quarter, they came out strong with the average law firm growing their worked rates by 7.3% compared to Q1 2024 levels. Law firms, from Midsize firms up to and through the Am Law 100, pushed their most aggressive rate increases since 2005.
Law firms saw a surge in demand late in the quarter that contributed to counter-cyclical practices such as litigation and transactional work including tax see substantial spikes. Their worked versus collected realization, the difference between the rate clients agreed to pay for a matter compared to what firms end up collecting, ended higher in Q1 2025 than it did in Q1 2024. This marked the first time that has happened in two years, showing that clients were pushing back less against 2025’s rates than they did against rates in 2024.
Law firms still face some uncertainty as direct expenses increased 7.6% in Q1 2025, surpassing the average rate growth of the average law firm, as firms continued to compete for talent and pay performance bonuses from last year. Overhead expenses also increased 6.3%.
Raghu Ramanathan, president of Legal Professionals, Thomson Reuters, noted, “As law firms continue to navigate the complex landscape highlighted by geopolitical and economic challenges, they must stay focused on strategic growth and investing in the technological revolution that is underway. Doing so signals a commitment to excellence and efficiency but also strengthens their position in the evolving legal landscape.”
A copy of the Q1 2025 LFFI report can be downloaded here.
