Law Firms’ 11% Revenue Jump Shows Resilience Amid Challenges (1)

Law firm revenue rose nearly 11% in the year’s first half driven by rising demand and increased rates, Citigroup Inc.’s law firm banking group found.

Demand grew 1.1% compared to the same six months a year ago, Citi found. Inventory—or bills to be collected—of 12.1% in the first half points to full-year growth remaining strong.

“We can expect to see an improved demand environment in our full-year numbers and a decent end to the year,” said Gretta Rusanow, managing director and head of advisory services at Citi’s Law Firm Group.

The results show law firms have remained resilient through a turbulent period in the US economy that has seen the rise of tariff barriers, an uncertain deal-making environment, and attacks on specific law firms by President Donald Trump.

The financial performance was based on a survey of 194 firms, including 82 of the world’s 100 largest by revenue. The firms performed evenly across the revenue distribution, moderating a long-term trend of outperformance by the largest firms by revenue.

While there has yet to be a broad rebound in transactional activity, a rise in large, strategic M&A has helped bump up demand, Rusanow said, adding that other “strong” practice areas include bankruptcy, litigation, and private credit.

Expense pressures ramped up at law firms, driven primarily by an increase in compensation costs, which rose 9.2% from the year-ago period, Citi’s survey found.

The increase does not count the cost of compensating equity partners. Its rise was driven instead by law firms growing the number of lawyers per equity partner, a figure known as “leverage,” and adding more non-equity partners to the mix.

Total lawyer headcount was up 2.7%, while leverage rose 3.8%. The number of non-equity, or income, partners rose 5.6%, Rusanow said.

“More lawyers, and more senior lawyers in the mix, are causing that compensation expense pressure,” she said.

Generative AI Impact

The survey found evidence that firms are preparing to shift the structure of their lawyer base in response to the adoption of generative artificial intelligence tools, Rusanow said.

About a quarter of large firms said they expect generative AI to cause a change in their leverage models by 2027. Only 9% of respondents said that a year ago, Rusanow said.

While the majority of firms expect their ranks of junior lawyers to expand in the coming years, only about a third plan to increase the size of their first-year associate classes, she said. The result will be law firms composed of more senior lawyers.

“There is a recognition that with generative AI, a lot of the more routine, repetitive work is going to be reduced,” Rusanow said. “Generative AI will be able to do that work and over time we will see demand for more senior associates and partners who will be called upon to do more judgment-based, strategic advisory work.”