Cost Control & Cash Flow Management

One of the most prominent trends that I see continuing in 2025 is the shift in client behavior and expectations. A significant number of clients are reducing the number of law firms they work with, with 34% actively reducing their panel and 33% seeking less expensive alternatives. This trend is forcing law firms to reevaluate their client relationships and focus on long-term retention strategies. Firms are increasingly leveraging data analytics to identify potential risks and proactively address client concerns. Additionally, there's a growing demand for transparency, with 85% of clients requesting more visibility into billing practices, matter statuses, and budget tracking. Law firms are responding by implementing business intelligence (BI) tools and training lawyers to improve their commercial acumen, enabling them to better communicate value and justify rate increases. 

I anticipate that firms will make additional investments in people and technology to support the requisite improvements in pricing and legal project management. Firms will compete for talent to ensure that they have a strong bench of professionals to lead the growth of these practices. More firms will look to move from Microsoft Excel to commercial software like BigHand Matter Pricing to build knowledge repositories of pricing arrangements and for effective project management. The added benefit of investment in tools like this is that firms will start seeing the benefit almost immediately – with the technology providing near real time updates of budget status and the potential scope creep and budget variance.

After a solid performance in 2024, and barring some large-scale macro-economic challenge, that seems unlikely, my sense is 2025 will be another good year for the largest law firms.  While prognosticators continue to call for the year that above-average rate increase don't stick, I don’t view that as a likely outcome.  As firms continue to ratchet up compensation to attract and retain the best talent, the need to improve their performance and cash flow will remain paramount.  The best time to improve their financial hygiene is not during a downturn, but in preparation for further pressure on performance.

With rates as high as they are, clients are naturally putting more scrutiny around bills and expect their counsel to be mindful of how they are staffing their work and ensuring the right work is being handled by the right resource, at the right rate.  This begins with effectively pricing matters and managing those engagements within budget, and when budget challenges arise, communicating with the client proactively about potential overruns.  This prevents write-downs and write-offs which can hurt profitability and challenge client relationships.  We also see firms investing in Business Intelligence tools and associated training to put key financial data into the hands of their lawyers to help them make smarter business decisions and better control the contribution of their books of business.  It is natural to assume more and more firms will adjust their compensation models to drive financial performance including a broader focus on business development and delivery of key performance measures.