2020 State of U.S. Small Law Firms - Thomson Reuters
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THOMSON REUTERS INSTITUTE
2020 tate of U.S.
S
Small Law Firms
2020 STATE OF U.S. SMALL LAW FIRMS
“Plus ça change, plus c’est la même chose”
It’s a phrase with which we are all likely familiar, albeit probably not in French. When Jean-Baptiste
Alphonse Karr coined that phrase in 1848, which translate roughly to “the more things change, the
more they stay the same,” there’s essentially no chance he had law firms in the 21st Century in mind.
Yet during a period of unprecedented speed of change for law firms of all sizes, and even in
the years leading up to today’s tumult, certain applications of this phrase have held quite true,
particularly for small law firms.
This is the fourth time Thomson Reuters has produced a report on the current state of small
law firms in the United States. Nearly every aspect of American life has undergone significant
change during that time. Yet some things have remained relatively constant for small law firms.
In particular, we note a few key themes.
1.
Small law firms continue to face a number of significant challenges, many of which have
remained consistent year-to-year. As has been the case in previous versions of this report, the
most frequently cited example of a significant challenge for small law firms is acquiring new
client business (26% of respondents rated this a significant challenge). This is followed closely
by spending too much time on administrative tasks and not enough time practicing law (17%).
2. Despite facing many of the same challenges one year to the next, most small law firms have
yet to take meaningful action. Of those firms stating they face a challenge either acquiring new
business or managing administrative tasks, fewer than one-third have actually implemented
a plan to deal with the problem. This too is a trend that’s held consistent. High levels of
recognition of the problems posed by various challenges has not led to significant action.
3. Because of a general lack of action, there is a real opportunity for those firms willing to make
the first move. In business, there is the concept of the “first-mover advantage.” This idea holds
that there is an advantage to be gained by being the first to offer something new to the market.
While it is undoubtedly true that some small law firms have already taken a leading role to
innovate their service delivery models, there remains ample fertile ground for other firms to
implement similar changes, whether by improving business development acumen, creating
optimal internal efficiencies for managing their law firms, or adopting technology to streamline
their practice.
A few other key findings:
•S
mall law firms felt increasing pressure around getting paid by their clients, felt most acutely
by firms with 10 or fewer attorneys, firms whose size make it much less likely that they have
professionals dedicated to managing billing and collections.
•O
ut of all the challenges faced by small law firms, getting paid by clients is the challenge
they are most likely to have taken steps to address.
•F
or the majority of small law firms, the bulk of the pressure they feel from competition comes
from other law firms, as opposed to DIY legal websites or alternative legal service providers.
© 2020 Thomson Reuters. All Rights Reserved. 2
2020 STATE OF U.S. SMALL LAW FIRMS
•E
ven with longstanding recognition of the challenges associated with acquiring new client
business, most firms have not increased their marketing budgets in the past three years, and
don’t intend to increase it going forward.
•T
he average attorney responding to the survey spends 60% of their time or less actually
practicing law. The rest goes to managing the firm or recruiting or retaining clients.
•M
ost small law firms say they consider client satisfaction ratings to be part of how they define
success (83%), yet only 36% of respondents say they actually track such ratings as a metric.
•W
hen respondents were asked to identify their goals for their firms, most goals grouped
around addressing the top two challenges for small law firms, winning new business and
managing the firm.
•F
ocusing on becoming more efficient and growing existing client relationships were
identified as the most important factors to success in the past year.
• Investment in technology or infrastructure was the most common area for increased
investment going forward, however, very few firms said they plan to invest in the kinds of
technology that might help address their administrative burdens or client acquisitions.
•D
espite all the challenges in the market, the vast majority of small law firms identified
their firms as either successful or very successful.
This survey, conducted in March and April 2020 at the onset of the COVID-19 pandemic and
concurrent economic woes in the United States, posed questions to 400 respondents from law
firms ranging from solo practices up to 29-attorney firms. Their responses offer key insights into
how lawyers at small firms were starting to think of their businesses as the pandemic set in, and
what impacts their actions, or lack thereof, had on their preparedness for economic upheaval.
To be sure, many things have changed rapidly during the months between when this survey was
conducted and when any individual person might be reading this report. But one cannot fully
understand where they are today without first understanding where they’ve been. It is our hope
that this report serves as a good foundation for small law firms looking to implement strategic and
tactical changes to improve their business outlook through the current struggles and beyond.
© 2020 Thomson Reuters. All Rights Reserved. 32020 STATE OF U.S. SMALL LAW FIRMS
Challenges Faced by Small Law Firms
In each of the several past versions of this study, challenges acquiring new client business has
been the highest ranked “significant challenge” faced by survey respondents, with significant
proportions of additional respondents rating it a “moderate challenge.” This indicates that
small law firms have struggled for years, and continue to struggle, with improving their business
development acumen. This is worthy of note and will be the focus of further discussion.
Spending too much time on administrative tasks and not enough time practicing law has also
historically been an area of challenge for small law firms. Respondents to this year’s survey rated
it as the second most common challenge, with 74% of respondents rating it at least a moderate
challenge. This is closely related to a lack of internal efficiency, identified as a challenge for 57%
of respondents.
Perhaps as a reflection of the growing pressure exerted on the legal market by the rise of the
COVID-19 pandemic, getting paid by clients was also a frequent source of significant challenge for
small law firms, particularly those with 10 lawyers or fewer. This could be due in part to financial
difficulties on the part of clients. But as we’ll see as we explore technology systems used by firms,
it could also be due to a lack of financial backend and payment systems within these firms.
The challenge of getting paid by clients could also be related to a difficulty on the part of law
firms to demonstrate their value to their clients. While not commonly identified as a challenge
by law firms responding to the survey, this could in fact be an under-recognized challenge.
Firms experiencing a challenge getting paid by their clients may not be doing as strong a job of
demonstrating value to their clients as they think, leading to clients pushing back more on costs or
delaying payments.
Figure 1: Firm Challenges 2020
Figure 1 – Firm Challenges
23% 27% 27% 21% 21% 26% 26% 32% 26% 18% 40% 34% 43% 36% 42% 35% 57% 32% 28% 16% 42% 53% 40% 43% 26% 42% 53% 49% 37% 15%
73% 64% 60%
50% 43% 48% 54% 58% 57% 58% 59% 63%
48% 50% 57% 54% 56% 58%
47% 47% 47% 49%
40% 50% 47% 44%
40% 40% 33% 37%
26% 30% 26% 25% 22% 25%
16% 20% 15% 10% 13% 16% 15%
17% 20%
8% 8% 12% 3% 12% 15% 10% 7% 13% 9% 12% 15% 14% 13% 15%
Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29
Challenges acquiring Spending too much time Increasing complexity Cost control and Lack of internal efficiency Clients demanding more
new client business on admin tasks, not of technology expense growth for less or rate pressure
enough on practicing law from clients
62% 55% 65% 61% 75% 38% 35% 40% 37% 32% 35% 35% 37% 32% 35% 51% 57% 49% 47% 54% 53% 83% 57% 41% 20% 68% 75% 73% 58% 61%
50% 54%
55% 58% 51% 57% 58% 45% 46% 40% 53% 68%
41% 44% 45%
40% 33% 42% 39% 35% 41% 35%
33% 31% 36% 31%
20% 23% 25%
19% 19% 23% 18% 14%
5% 5% 5% 4% 6% 8% 6% 8% 7% 10% 12% 8% 9% 8% 8% 4% 8% 3% 9% 7% 12% 2% 2% 2% 1% 4%
Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29
Increasing pace of legal Keeping up with Getting paid by clients Demonstrating the firm’s Managing staff Retaining client business
and regulatory change competition from other value to potential clients
firms in your practice area
Significant challenge Moderate challenge Not a challenge Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
© 2020 Thomson Reuters. All Rights Reserved. 42020 STATE OF U.S. SMALL LAW FIRMS
Addressing These Challenges
Another theme we have seen frequently throughout the years of conducting this survey is that,
despite generally high levels of recognition of challenges by the leaders of small law firms,
implementation of solutions to confront these challenges remains wanting.
For example, only about 29% of firms saying they have a challenge acquiring new client business
say that they’ve actually implemented a plan to address that challenge. True, an additional 31%
say they’ve made a plan that they have not implemented yet, but here again, this is something
we’ve heard for years. We often hear about firms making plans to address challenges, but for a
variety of reasons, those plans may never actually be put into action. Making a plan without taking
any actions does little to actually alleviate the identified problem.
Among the challenges commonly identified as “significant challenges,” getting paid by clients was
the challenge most frequently met with action. Given the existence of a law firm as a cash-flow-
dependent business with little other operating capital, this is a wise move.
It is notable, as well, that larger small firms, those with 7-10 lawyers or 11-29 lawyers, were
generally more likely to have actually implemented a plan to address the challenges they face,
Figure 2: Addressing Challenges
regardless of the challenge in question.
Figure 2 – Addressing Challenges
41% 43% 39% 48% 28% 50% 58% 48% 50% 39% 38% 43% 45% 27% 18% 37% 49% 39% 35% 31% 45% 51% 45% 35% 46% 53% 53% 58% 58% 44%
51%
35% 33% 24%
34% 33% 32% 34% 35% 40%
31% 36% 30% 38% 25% 31% 28% 17%
27% 31% 29% 30% 27% 24%
45% 29% 27% 31%
31% 41% 26% 25% 39%
37%
29% 31% 27% 29% 31% 31% 31% 31% 30%
21% 25% 22% 20% 24% 26% 25% 20% 27% 26% 20% 16%
20% 13% 15% 17%
11%
Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29
n=309 n=117 n=105 n=32 n=48 n=297 n=119 n=97 n=29 n=49 n=240 n=106 n=78 n=26 n=35 n=264 n=69 n=97 n=29 n=50 n=233 n=45 n=86 n=23 n=45 n=235 n=75 n=72 n=25 n=51
Challenges acquiring Spending too much time Increasing complexity Cost control and Lack of internal efficiency Clients demanding more
new client business on admin tasks, not of technology expense growth for less or rate pressure
enough on practicing law from clients
47% 56% 43% 46% 58% 41% 42% 33% 30% 31% 33% 25% 31% 48% 42% 59% 48% 31% 37% 38% 48% 29% 32% 42% 63% 38% 25%
35% 27% 21% 29% 33% 24% 26% 24% 28% 25%
36% 40% 27% 38% 36%
27% 30% 34% 34% 29%
26% 23% 24% 47% 50%
16% 31% 43% 48% 39% 42% 45% 22% 43% 40%
37% 25%
32% 30% 29% 28%
26% 28% 26% 20% 22% 19% 26% 24% 25% 27%
20% 20% 13%
** ** 11% **
Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29
n=154 n=72 n=50 n=16 n=15 n=252 n=104 n=85 n=25 n=41 n=261 n=104 n=89 n=27 n=39 n=198 n=69 n=73 n=21 n=27 n=189 n=27 n=62 n=24 n=48 n=131 n=40 n=39 n=17 n=24
Increasing pace of legal Keeping up with Getting paid by clients Demonstrating the firm’s Managing staff Retaining client business
and regulatory change competition from other value to potential clients
firms in your practice area
We have implemented changes We have a plan to address these issues We haven’t yet determined how
**Sample size too small to report
to address the issues but have not yet implemented to address these issues
© 2020 Thomson Reuters. All Rights Reserved. 52020 STATE OF U.S. SMALL LAW FIRMS
Changes to Meet Challenges
Among those firms who said they’ve either implemented a plan to address their challenges, or
have at least developed a plan they have yet to implement, most frequently leaders at those
firms are looking to improve, upgrade, or add technology to their tech stack to help alleviate the
pressures they are feeling. Around a quarter of respondents pointed to changing technology as a
solution, regardless of the size of their firm.
Other common, though substantially less frequently cited changes included increasing, updating
or emphasizing marketing; monitoring or cutting costs such as salaries or overhead expenses; and
improving payment collections.
Figure 3 – Changes Implemented
Total Solo 2–6 7–10 11–29
Changes Implemented in 2020 n=299 n=114 n=104 n=30 n=52
Improve / upgrade / add more technology (hardware & software) 26% 22% 28% 30% 23%
Increase / update / emphasize marketing / advertising / promotions /
14% 13% 10% 19% 20%
networking to generate new clients
Monitoring / cutting costs / salaries / overhead / employees / etc. 12% 4% 15% 9% 14%
Improve / increase payment collection / accept credit / debit cards /
10% 7% 14% 14% 9%
ACH payments
Meeting / planning / strategizing 10% 9% 10% 12% 12%
Adding more / better attorneys / staff / managers 10% 4% 10% 16% 9%
Better communication with staff / clients 9% 3% 12% 7% 9%
Work smarter / more efficiently / hold accountable for productivity 8% 9% 6% 9% 12%
Update / better website / increase social media presence / SEO /
8% 10% 8% 7% 7%
client reviews
Increase / monitor billing rates / hours / increase retainers 8% 7% 6% 5% 14%
Establish / enforce / monitor firm policies / procedures 6% 6% 10% 5% 5%
Employee evaluations / recognition / awards / bonuses 5% 0% 5% 7% 12%
Hire consultant / specialist 3% 2% 2% 7% 2%
Choosing new clients carefully 1% 2% 0% 4% 0%
Other 10% 19% 11% 0% 16%
None / Not sure / NA 5% 7% 1% 2% 0%
© 2020 Thomson Reuters. All Rights Reserved. 62020 STATE OF U.S. SMALL LAW FIRMS
Sources of Competition
For most small firms, their headaches do not end with the list of challenges already discussed. A
majority of small law firms of all size also experience threats to their business due to competition,
both from other small law firms and from larger law firms that compete for the same clients.
These sources of competition are inextricably intertwined with the challenge small law firms feel
around acquiring new client business. The legal services market has, for a number of years, been a
buyer’s market. The onset of the economic slowdown associated with COVID-19 will only exacerbate
this reality.
For small firm lawyers, it is vital to stake a place in the market that differentiates them from their
competitors, whether those competitors be other small firms or larger firms with deeper benches.
Small law firms looking to compete must clearly establish what sets them apart in terms of the value
they bring to their clients. As we’ve seen, firms generally feel they do a good job of demonstrating
value to their clients, but the reality of some of the challenges they face suggests otherwise.
In the face of strong competition, small law firms would do well to invest in a robust, integrated
marketing plan.
Figure 4 –Sources of Competition
Figure 4 – S
ources of Competition
79% 78%
73% 74%
63%
55% 56%
52% 51%
45%
22%
12% 12% 12% 14% 14% 12%
8% 6% 8% 6% 5% 4%
5% 5%
Other law firms Significantly larger law Individual consumers Legal guidance from Law firm
or similar size firms that compete representing DIY legal websites matching services
for the same clients themselves pro se or services
9% 8%
6% 5% 6% 7% 4% 5% 4% 6% 3% 6% 6%
1% 0% 2% 1% 0% 3% 4%
Outsourcing In-house Counsel Other None of the above
Total (n=403) Solo (n=46) 2-6 (n=154) 7-10 (n=43) 11-29 (n=57)
© 2020 Thomson Reuters. All Rights Reserved. 72020 STATE OF U.S. SMALL LAW FIRMS
Changes in Marketing and Spend
Despite widespread recognition for years of the challenge posed with acquiring new client business,
and nearly 30% of respondents saying they’ve implemented a plan to address that challenge, more
than half of respondents report no change in their marketing spend in the past three years. The only
exception to this comes among firms with 11-29 attorneys, where 38% reported no change, with 22%
reporting growth in marketing spend of between 1-3%. In general, larger small firms were more likely
to grow their marketing spend than smaller firms, regardless of the rate of growth.
Figure 5 –Marketing Change in Spending Last 3 Years
Figure 5 – C
hange in Marketing Spending in Last Three Years
57%
52% 52% 54%
38%
8%
4% 4% 4% 6% 2% 4% 4% 4% 6% 4% 4%
1% 2% 0%
Decline more Decline 3–5% Decline 1–3% No change
than 5% annually annually annually
22%
14% 14% 12% 15%
10% 12% 11%
8% 9% 7% 7% 7% 7% 8% 8% 8%
5% 6%
2%
Grow 1–3% Grow 3–5% Grow more than Don’t know
annually annually 5% annually
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
The numbers look virtually identical with regard to planned growth of marketing spend. Smaller
law firms still see majorities planning no change to their marketing spend. And fewer firms
with 11-29 lawyers plan to grow their marketing spend in the next three years than did so in the
past three years.
On a positive note, it is encouraging that even though this survey was fielded during the start of
the pandemic shutdowns, very few firms reported planning to cut marketing spend in the coming
three years. It is difficult to say whether that still holds true as the state of the economy continues
to be in flux. It should be noted, though, that even those firms planning to hold fast on their current
levels of marketing spend will find themselves with diminished buying power year-over-year due
to normal inflation.
© 2020 Thomson Reuters. All Rights Reserved. 82020 STATE OF U.S. SMALL LAW FIRMS
It is also worth noting that even in the face of potentially contracting marketing budgets, firms
can find opportunities to address their challenges with acquiring new client business through a
strengthened focus on marketing activities with a higher return on investment. A smaller overall
marketing budget may actually result in better returns if that smaller budget focuses on a strong,
integrated marketing strategy with a focus on maximizing return.
One additional note, while the question addresses both marketing and advertising spend, we treat
them as essentially the same for the purposes of discussion here as any advertising should be part
of a broader aligned marketing plan, rather than being considered a separate effort.
Figure 6 –Marketing Change in Next 3 Years
Figure 6–C hange in Marketing Spending in Next Three Years
62%
50% 51%
46%
43%
3% 4% 3% 4% 0% 4% 3% 3% 3% 6%
1% 0% 1% 0% 2%
Decline more Decline 3–5% Decline 1–3% No change
than 5% annually annually annually
22% 21%
19% 17% 17%
16% 15%
10% 10% 12%
8% 9% 8%
6% 4% 4% 6% 6%
1% 1%
Grow 1–3% Grow 3–5% Grow more than Don’t know
annually annually 5% annually
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
“A smaller overall marketing budget may actually result in better
returns if that smaller budget focuses on a strong, integrated
marketing strategy with a focus on maximizing returns.”
© 2020 Thomson Reuters. All Rights Reserved. 92020 STATE OF U.S. SMALL LAW FIRMS
Types of Marketing Activities
Free listings in online directories, social media advertising, and reputation management are the
most common types of marketing activities for small law firms, but there is a clear dichotomy
between larger small law firms and solo attorneys in terms of their adoption.
More solo attorneys admit that they do no marketing or advertising (33%) than say they engage
in any of the listed types of marketing (the highest was 30% who say they use free online directory
listings). In general, a surprising number of respondents say that their small law firm does not do
any marketing.
Generally, more small law firms say they use print directories than targeted or pay-per-click
online advertising,
Figure 7 – Types of Marketing despite
Activities the boom over the past several years in online commerce. We do note,
however, the proportion of firms who do engage in social media efforts, purchase listings in online
directories, or run a blog.
Figure 7 – Types of Marketing Activities
52%
42% 44% 44%
39% 38% 40%
34% 35%
30% 32%
29% 27% 28% 27% 25% 28% 28%
25% 23% 24% 23% 25% 26% 23% 24%
21% 20% 22% 20% 22%
17% 17% 18%
12%
Free listing in Social media Reputation Purchasing listing in Print advertising Online blogging Listing in
online directories advertising management online directories print directory
33%
20% 21% 20% 22%
17% 18% 18% 18% 19%
14% 14% 15%
12% 4%
8% 6%
4% 3% 3% 1% 5%
0% 0% 0% 1% 0% 3% 0% 0%
Pay-per-click or Radio advertising TV advertising Billboard Other Our firm doesn’t do any
online advertising advertising marketing or advertising
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
“…a surprising number of respondents say that their small law
firm does not do any marketing.”
© 2020 Thomson Reuters. All Rights Reserved. 102020 STATE OF U.S. SMALL LAW FIRMS
The Impact of Marketing
Despite acknowledging a challenge acquiring new business, many respondents say that their firm’s
client base, i.e., the number of clients served by the firm, has increased over the past three years.
Another
Figure 8 The25%
Impactsay their client base has held steady. The largest sign of potential trouble lies among
of Marketing
the 24% of solo lawyers who reported their client base has decreased more than 5% per year over the
past 3 years.
Figure 8 – The Impact of Marketing
30%
24% 25% 26%
22%
15%
8%
5% 4% 3% 4% 4% 4%
3% 3% 1% 4% 3% 2%
0%
Decline more Decline 3–5% Decline 1–3% No change
than 5% annually annually annually
26%
21% 22% 21%
18% 18% 17%
15% 16% 15% 15% 16% 16% 17% 14%
12% 13% 12%
7%
3%
Grow 1–3% Grow 3–5% Grow more than Don’t know
annually annually 5% annually
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
“…many respondents say that their firm’s client base…has
increased over the past three years.”
© 2020 Thomson Reuters. All Rights Reserved. 112020 STATE OF U.S. SMALL LAW FIRMS
The Importance of Existing Clients
For the majority of small law firms, the bulk of their annual revenues come from existing clients.
Roughly half of responding firms report that they receive 30% or less of their revenue each year
from new clients. Here again, solo attorneys are the exception, with the majority of solo law firms
receiving 50% or more of their revenue from new clients each year, owing most likely to the types
of clients served and the services being offered (e.g., family law, criminal defense).
Figure 9 New Client Revenue
It is, perhaps, ironic, that solo lawyers were also those who were most likely to have reported
declines in their marketing spend over the past three years, and were less likely to increase their
marketing budgets over the coming three years.
Figure 9 – New Client Revenue
25% 26%
21%
17% 19% 18% 19%
15% 16% 15% 16% 15%
13%
11% 11% 9% 9% 8% 8% 6% 8% 9% 6%
5% 6%
0-10% 11-20% 21-30% 31-40% 41-50%
12% 14% 14%
10% 12%
8% 10% 8% 7% 9% 10% 10% 8%
6% 6% 4%
3% 4% 4%
1%
4%
1% 3%
4%
0%
51-60% 61-70% 71-80% 81-90% 91-100%
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
“…the bulk of their annual revenues come from existing clients.
Roughly half of responding firms report that they receive 30%
or less of their revenue each year from new clients.”
© 2020 Thomson Reuters. All Rights Reserved. 122020 STATE OF U.S. SMALL LAW FIRMS
Finding Time to Be a Lawyer
Roughly 60% of a small firm attorney’s time is spent practicing law. That means that 40% is spent
elsewhere. And given that practicing law is what attorneys are paid to do, it is no surprise that 64%
of respondents said they face a challenge from spending too much time on administrative tasks.
Particularly for small firm lawyers, administrative burdens can be consuming, especially in
comparison to their counterparts at larger firms. Larger firms often have deeper benches of allied
professionals tasked with managing tasks like IT, marketing, billing, and collections. In smaller
firms, these tasks fall much more commonly to the partners. This can be seen in the 20% of time
spent managing the firm by respondents from firms with 11-29 attorneys. These firms arguably
have more complex operations due to larger staff and overhead, increasing the amount of time
that must be devoted to management.
Time being a finite commodity, small firm lawyers should be focused on finding efficient solutions
to internal operations and management so as to optimize the amount of time they can spend
practicing law.
Figure 10 Time Allotment
Figure 10 – Time Allotment
61%
58% 57% 59%
55%
20%
18%
15% 14% 14%
13%
10% 11% 11% 9% 10% 11% 10% 8% 10%
5% 5% 5% 5% 6%
Practicing law Managing the firm Growing the firm / Meeting or speaking Dealing with
marketing activities with clients admin tasks
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
“Roughly 60% of a small firm attorney’s time is spent
practicing law. That means that 40% is spent elsewhere.
…64% of respondents said they face a challenge from
spending too much time on administrative tasks.”
© 2020 Thomson Reuters. All Rights Reserved. 132020 STATE OF U.S. SMALL LAW FIRMS
Most View Themselves as Successful
Despite the numerous challenges they face, most small law firms consider themselves to be either
successful or very successful. This may be part of the reason why many small firms appear reluctant
to implement changes to the challenges they see, because the feeling of success can be a strong
inhibitor of a drive to change. However, it is important to note that small law firms recognize that
they face a high degree of competition from larger law firms, and many of these firms are making the
same types of changes small firms have been putting off.
To look more directly at the idea of why small law firms largely view themselves as successful, it is
useful to look at how they choose to define success.
Figure 11 – Success Characterized
1% 1%
5% 7% 5%
22%
28% 27%
66% 70% 68%
Total Solo lawyer 2-6 lawyers
n=403 n=161 n=142
1%
4% 4%
29%
39%
66% 57%
7-10 lawyers 11-29 lawyers
n=40 n=60
Very successful Successful Neither successful nor unsuccessful Not successful
© 2020 Thomson Reuters. All Rights Reserved. 142020 STATE OF U.S. SMALL LAW FIRMS
The most common measures of success for small law firms are overall profits, repeat business, and
client satisfaction ratings. It is encouraging to see overall profits edging ahead of overall revenues as
a measure of firm success, placing the emphasis for success on the bottom line.
Figure 12 Measures of Success
However, how closely these measures of success are monitored may be a different story.
Figure 12 – Measures of Success
98%
92% 94%
88%
83% 82% 83% 86% 85% 87% 85% 83% 82%83%
79% 80% 79% 78% 79%
58%
Client satisfaction Repeat business Overall profits Work/life balance
ratings
86%
82%
79% 80%
70%
51%
46% 46% 45% 48%
42% 42% 43%
38% 37% 40%
36% 34%
25%
20%
Overall revenues Case win percentage Revenue per partner Profits per partner
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
© 2020 Thomson Reuters. All Rights Reserved. 152020 STATE OF U.S. SMALL LAW FIRMS
Despite 83% of respondents saying that client satisfaction ratings were part of how they defined
success, only 36% say they actually track them. A similar, though smaller, divergence can be seen
with repeat business, where only 52% of respondents say they track it as a metric, while 86% said
it was part of how they defined success.
Small
Figure 13 firms were much more likely to track overall profits and revenues. Interestingly, more firms
Metric Traking
reported tracking revenue per partner than those who said it was part of their definition of success.
Figure 13 – Metric Tracking
98% 96%
91% 91% 90% 93% 91%
89%
77% 79%
74%
68%
61%
57% 55%
52% 52% 52% 50%
19%
Overall profits Overall revenues Repeat business Revenue per partner
66%
58%
46% 47% 47%
36%
33% 30% 33%
28%
22% 21% 20%
17% 19% 18% 19%
14% 15%
8%
Client satisfaction Case win percentage Work/life balance Profits per partner
ratings
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
© 2020 Thomson Reuters. All Rights Reserved. 162020 STATE OF U.S. SMALL LAW FIRMS
The well-worn business school maxim that “you can’t manage what you don’t measure” holds true
for small law firms, as does its corollary, “measure what matters.” Among those firms who tracked
key metrics, almost none saw declines in those metrics that were not influenced by external forces.
Some firms who measure metrics like revenues and profits did see those metrics decline, but there
are a host of economic factors which can lead to such declines. In contrast, those firms who tracked
metrics like client satisfaction or repeat business were highly likely to see those metrics either hold
steady, and in many cases improve, sometime substantially.
Figure 14 – Metric Changes
1% 1% 2% 0.5% 0.5%
8% 11% 11% 10%
19% 16% 17%
36%
35% 33% 34%
36% 37% 55%
37%
Revenue per partner Overall revenues Overall profits Client satisfaction
ratings
2% 1% 1% 2%
8% 6% 6% 5% 6%
18%
27%
30% 34%
28%
61%
58% 65% 40%
Repeat business Work/life balance Case win percentage Profits per partner
Significantly improved Somewhat improved Stayed the same Somewhat worse Significantly worse
© 2020 Thomson Reuters. All Rights Reserved. 172020 STATE OF U.S. SMALL LAW FIRMS
Goals and Priorities
When asked to identify their top three goals for their firms, respondents unsurprisingly gravitated
to goals related to the challenges they previously identified. Some 33% of respondents identified
increasing or improving business development as a goal. To that we can add:
• 26% want to be seen as ‘best of the best’
• 21% want to differentiate from their competition
• 19% want to enhance their reputation in the local community
All of these can easily be seen as goals related to improving business development.
Firms were also quick to select goals that addressed their challenges with lack of internal efficiency
or spending too much time running their firms.
• 25% want to improve internal efficiency
• 20% want to grow while becoming more efficient
• 19% want to leverage technology to improve firm operations
It is also an encouraging sign that relatively few firms admit that they lack specific firm goals. Again,
there’s a difference between having a plan and actually implementing that plan, but any planning
process necessarily starts with identifying goals.
Figure 15 – Goals & Priorities
Figure 15 – Goals & Priorities
45%
34% 36%
33% 33%
28% 29% 27% 26% 26%
25% 26% 24% 24% 26% 25% 24%
23% 23% 22%
22% 21% 23%
17%
14%
Increasing or improving Being considered Growing while Improving internal Differentiating your firm
business development the best of the best maintaining quality efficiency from your competition
and marketing
40%
29%
22% 23% 21% 23%
20% 18% 18% 19% 20% 19% 18%
15% 15% 16% 17%
14% 14% 12% 15%
11% 12%
9%
4%
Growing while Enhancing your Leveraging technology Providing better Succession planning
becoming more efficient reputation in the to improve firm service to your
local community operations current clients
24%
20% 18% Total (n=403)
13% 15% 15% 13% 15% 13% Solo (n=161)
10% 12% 11%
9% 7% 2-6 (n=141)
2%
7-10 (n=40)
Growing select Enhancing the value We don’t have
practices your firm provides specific firm goals 11-29 (n=60)
© 2020 Thomson Reuters. All Rights Reserved. 182020 STATE OF U.S. SMALL LAW FIRMS
Changes to the Firm
None of the preceding is to suggest that the bulk of small law firms have done nothing to change
their firm in the past several years. Indeed, many report making a number of changes, even if those
changes are not directly related to the challenges identified at the outset of this report.
More than half of respondents report increasing their billing rates, with this being more common
among the larger firms surveyed. Indeed, this has been a common tactic to help enhance
profitability for firms of all sizes for much of the past decade. Unsurprisingly, far fewer firms report
having changed their billing practices to offer more alternative fee arrangements.
Technology was a dominant theme here as well, with 45% of respondents saying that their firm
had adopted new technology in the past 2 years.
Less common, though still noteworthy, 25% of respondents reported cutting ties with unprofitable
services or clients, and 23% reported changing their marketing strategy, an important step to
address that much-discussed challenge.
Figure 16 –Firm Changes
So why pursue these changes?
Figure 16 – Firm Changes
54% 56%
45% 43%
37%
34% 33%
32% 30%
23% 21% 21%
20% 20% 20%
19%
16% 16%
11% 10%
7% 8% 8%
4% 4%
Adopted new Changed marketing Changed staffing Pushed work to staff Mapped and refined
technology strategy ratios with lower billable rates practice workflows
68%
61%
52%
46%
39%
32%
28%
25% 23%
21%
18% 17% 16%
14%
11% 12%
9% 9% 8%
3% 3% 1% 4% 3% 2%
Changed billing practices Increased billing rates Cut unprofitable Other None
(e.g. executed more AFAs services or client
vs. hour billing)
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
© 2020 Thomson Reuters. All Rights Reserved. 192020 STATE OF U.S. SMALL LAW FIRMS
Most often, respondents said the changes they sought were an effort to either reduce cost or
improve the quality of service.
Despite a stated goal of improving efficiency, very few firms implemented any changes with that
goal in mind.
Figure 17 Reasons for Major Changes
Figure 17 – Reasons for Major Changes
72%
65% 65%
62% 61%
57% 56% 59% 57% 56% 55%
53%
49%
46%
41%
12% 11%
10%
8% 6%
To improve quality To reduce cost To respond to the To build a new
of service overall legal climate practice area
8% 7% 7% 9% 6% 6% 8%
5% 4% 4% 4% 5% 5% 4%
3% 2% 3% 2% 3% 2%
Clients asked for it Improve/increase Increase revenue Other
efficiency
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
“…respondents said the changes they sought were an effort
to either reduce cost or improve quality of service.”
© 2020 Thomson Reuters. All Rights Reserved. 202020 STATE OF U.S. SMALL LAW FIRMS
What Drives Positive Performance
Forty-percent of respondents said that growth in relationships with existing clients was a factor
in their positive performance. The benefit here is two-fold as strong relationships with existing
clients helps not only with repeat business, but also with referrals, which was identified by 33% of
respondents as a positive performance factor.
Another 43% said that expense management had been a positive performance factor, which is
understandable given the overall economic uncertainty. Strategic management of expenses will
undoubtedly be a key portion of preserving profitability. As always with expenses, though, the trick
will be managing expenses in such a way that the ability to practice law and efficiently do business is
not encumbered.
Figure 18 – Positive Performance Factors – 2020
Total Solo 2–6 7–10 11–29
All Positive Performance Factors n=403 n=161 n=142 n=40 n=60
Expense management 43% 34% 42% 32% 46%
Focused on becoming more efficient 43% 44% 39% 42% 56%
Grew relationships with existing clients 40% 32% 39% 42% 48%
Increased client referrals from existing clients 33% 33% 30% 41% 31%
Enhanced reputation 32% 31% 31% 32% 35%
Invested in our infrastructure/technology 29% 18% 27% 32% 46%
Increased client satisfaction 25% 30% 24% 24% 20%
Improved business development efforts 23% 8% 23% 25% 41%
Grew while maintaining quality 17% 9% 8% 21% 46%
Focused on growing select practices 17% 16% 18% 18% 16%
Talent management 14% 3% 11% 21% 28%
Improved client retention 13% 14% 6% 20% 17%
Created greater differentiation from competitors 10% 3% 13% 13% 10%
Changed our lawyer/partner structure 9% 1% 11% 11% 14%
None 1% 3% 1% 0% 0%
© 2020 Thomson Reuters. All Rights Reserved. 212020 STATE OF U.S. SMALL LAW FIRMS
Interestingly, when asked what was the single most important factor in a firm’s positive
performance, “focused on becoming more efficient” was the most frequently selected, followed
closely by “grew existing client relationships.”
Figure 19 – Most Important Performance Factors – 2020
Total Solo 2–6 7–10 11–29
Most Important Performance Factors n=403 n=161 n=142 n=40 n=60
Expense management 15% 18% 18% 17% 6%
Focused on becoming more efficient 13% 17% 15% 11% 10%
Grew relationships with existing clients 10% 5% 8% 12% 16%
Increased client referrals from existing clients 9% 12% 9% 11% 4%
Invested in our infrastructure/technology 9% 5% 6% 16% 8%
Enhanced reputation 7% 7% 5% 8% 4%
Grew while maintaining quality 7% 3% 4% 7% 26%
Improved business development efforts 7% 2% 11% 3% 18%
Increased client satisfaction 6% 13% 5% 5% 4%
Focused on growing select practices 5% 5% 6% 4% 0%
Talent management 3% 1% 2% 4% 2%
Changed our lawyer/partner structure 2% 1% 4% 0% 0%
Improved client retention 1% 1% 1% 1% 0%
Created greater differentiation from competitors 1% 2% 1% 3% 0%
None 1% 3% 1% 0% 0%
© 2020 Thomson Reuters. All Rights Reserved. 222020 STATE OF U.S. SMALL LAW FIRMS
The Need to Invest
Small firms undoubtedly recognize that to accomplish the goals they’ve set forth and confront the
challenges they face, they will need to make some key investments.
Technology is again a focus, with 30% of respondents saying they plan to increase their investment
in technology and infrastructure.
The same holds true for marketing and business development, where another 30% plan to
increase their investment. As we saw previously, the level of increased investment will likely vary
widely. But given the prolonged period during which finding new client business has posed a
problem, a commitment to increased investment will hopefully help alleviate some of that strain
Figure 20: Investment Areas
and increase the proportion of firms seeing their client base expand.
Figure 20 – Investment Areas
6% 5% 6% 7% 2% 6% 7% 6% 7% 4% 5% 4% 6% 2% 6%
65% 57% 55% 82% 80% 83%
64% 71% 57% 64% 69% 64% 66% 83% 80%
41% 41%
37% 15%
30% 30% 30% 30% 28%
23% 24%
16% 14%
13% 11%
Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29
n=403 n=161 n=142 n=40 n=60 n=403 n=161 n=142 n=40 n=60 n=403 n=161 n=142 n=40 n=60
Technology / Business development / Professional
infrastructure marketing development
7% 9% 6% 8% 8% 13% 18% 18% 10% 10% 19% 22% 22% 15% 20%
75% 82% 80%
59% 73% 69% 74%
76% 78% 77% 70%
74% 77% 65%
89%
33%
28%
18% 17% 15%
2% 12% 9% 8% 10% 5% 0% 2% 12% 10%
Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29 Total Solo 2-6 7-10 11-29
n=403 n=161 n=142 n=40 n=60 n=403 n=161 n=142 n=40 n=60 n=403 n=161 n=142 n=40 n=60
Attorney headcount Staff support Real estate
Higher Essentially remain the same Lower
“Technology is again a focus, with 30% of respondents
saying they plan to increase their investment in technology
and infrastructure.”
© 2020 Thomson Reuters. All Rights Reserved. 232020 STATE OF U.S. SMALL LAW FIRMS
A Few More Notes on Technology
The need for improved technology has been a recurring theme in this report. So it seems worthwhile
to engage in a bit more substantive discussion of the current state of technology for small law firms
and the changes small firms plan to make.
Figure 21 – Technology Systems Used
Figure 21 – Tech Systems Used
91% 92%
74% 73%
66% 64%
62% 62%
59%
52% 52% 52% 53%
49% 48%
47% 46% 46%
40% 40% 41% 42% 41%
38% 39%
35% 33% 34%
30% 28%
Time and billing Financial mgt. / Document Conflict Electronic Case / matter
accounting management checking signatures management
56%
43% 42%
36% 34%
33% 32%
31% 29% 30% 29% 30%
26% 26% 28% 25%
27% 27% 27%
25% 25% 24% 24% 25%
27%
23%
20% 21% 19%
18%
eBilling Document Client intake Document or forms Practice Rules-based
drafting tools assembly / automation management docket / calendaring
33% 32%
28%
24% 23% 23% 24%
18% 17% 18% 20% 19% 18%
15% 16%
14% 13% 12% 12% 12% 12% 14%
10% 11%
8% 8% 9%
4% 6% 5%
Litigation support eDiscovery Matter budgeting Client portals or Customer relationship Internal portals
and cost tracking data rooms mgt. / contact mgt.
13% 14% 15%
12% 12%
10% 9% 6% 9% 7% 9% 9% 9% 8% 10% 7% 7% 6% 6% 6%
Custom developed Collaboration Knowledge Legal project
firm applications management managment tools
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
© 2020 Thomson Reuters. All Rights Reserved. 242020 STATE OF U.S. SMALL LAW FIRMS
A majority of small law firms have already implemented time and billing technology, as well as
financial management programs. Among firms with 11-29 lawyers, majorities also report using
document management, conflict checking, electronic signature, and eBilling tech.
Far less common among small firms of all sizes are technologies such as practice management
programs, rules-based docketing, matter budgeting, or collaboration tools. Adoption of these
kinds of technology could help small firms address the challenges they face from a lack of internal
efficiency and spending too much time on administrative tasks within their firms.
Similarly, few firms have adopted client intake programs, client portals, or client relationship
management tech. These types of applications could be beneficial to firms looking to ease the
burden of winning
Figure 22 –Tech new business.
Systems to Implement in next 12 months
Figure 22 – Technology Systems to Implement
13%
9% 8% 7% 8% 8%
5% 3% 5% 7% 5% 3% 6% 4% 3% 3% 4% 1% 2%
1% 2% 1% 1% 0% 2%
Time and billing Electronic signatures Case/matter eBilling eDiscovery
management
10%
4% 4% 4% 6% 3% 4% 3% 3% 2% 3% 3% 1% 2% 2% 4%
1% 1% 2% 2% 0% 0% 0% 0% 2%
Document Conflict checking Financial management/ Practice management Client intake
management accounting
72% 73% 70% 74% 74%
6%
2% 3% 3% 0% 0% 3% 2% 2% 1% 2% 0% 4% 3% 4% 3% 4% 3% 1% 4%
Document Document or forms Rules-based docket / Customer relationship None of the above
drafting tools assembly / automation calendaring managment / contact
management
Total (n=403) Solo (n=161) 2-6 (n=142) 7-10 (n=40) 11-29 (n=60)
© 2020 Thomson Reuters. All Rights Reserved. 252020 STATE OF U.S. SMALL LAW FIRMS Having identified these tech options as potential aids to problems faced by small law firms, very few firms report an intent to implement any of them in the next year. The clear front-runner is practice management, which 10% of firms with 11-29 attorneys say they plan to implement in the next year. The other technology platforms discussed struggle to find even 5% of respondents who plan to implement them in the next year. Firms looking to differentiate themselves in an increasingly competitive market may want to explore these technologies, as they appear to offer a clear opportunity to do something their competitors are not doing and don’t plan to do anytime soon. © 2020 Thomson Reuters. All Rights Reserved. 26
2020 STATE OF U.S. SMALL LAW FIRMS
Firmographics
5%
10%
NUMBER OF ATTORNEYS IN FIRM
10% 40%
Solo 7-10
2-3 11-20
4-6 21-29
15%
JOB TITLE 20%
95%
45% 46%
41%
36% 34%
30% 32%
29%
22% 23%
20% 18%
16%
4% 4% 5%
0% 1% 1%
Owner Senior \ Managing Partner COO / Executive
Partner Director
Total Solo 2-6 7-10 11-29
YEARS OF PRACTICE EXPERIENCE
71% 70%
66% 66%
60%
24% 24%
21% 23% 22%
14%
11%
8%
5%
2% 1% 1% 2% 4% 4%
< 5 years 5-9 years 10-20 years 21+ years
Total Solo 2-6 7-10 11-29
© 2020 Thomson Reuters. All Rights Reserved. 272020 STATE OF U.S. SMALL LAW FIRMS THOMSON REUTERS INSTITUTE The Thomson Reuters Institute brings together people from across the legal, corporate, tax & accounting, and government communities to ignite conversation and debate, make sense of the latest events and trends, and provide essential guidance on the opportunities and challenges facing their world today. As the dedicated thought leadership arm of Thomson Reuters, our content spans blog commentaries, industry-leading data sets, informed analyses, interviews with industry leaders, videos, podcasts, and world-class events that deliver keen insight into a dynamic business landscape. Visit our Legal Executive Institute and Answers On blogs for more details. © 2020 Thomson Reuters
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