Anderson: Strong growth
The top 10 law firms have raised hourly rates by over 10% to an average of almost £500 while cutting staff numbers, new research has found.
Accountants PwC also said that, across the top 100, the proportion of law firms that believed artificial intelligence (AI) would reduce the number of chargeable hours was “steadily intensifying”.
The 10.5% increase in hourly rates charged by the top 10 to £496 was well ahead of the 3.4% increase law firms in the top 11-25 to £336, 3.2% for firms in the 26-50 band to £289 and 6% among the rest of the top 100 to £262.
PwC’s 34th annual survey [1] of the top 100 warned that a “heightened focus on value” by clients made it “probable that securing substantial rate increases will become increasingly difficult”.
Meanwhile, the “growing adoption of technology is poised to influence pricing models and may prompt further shifts away from the traditional ‘rate per hour’ approach”.
The huge gap between the top 10 and the rest of the top 100 in terms of profits per equity partner (PEP) persisted, with top 10 hitting £1.8m, compared to £1.04m for firms in the 11-25 band, £640,000 in 26-40 and £600,000 for the rest.
PwC found that while the top 10 cut their staff by 2%, the rest of the top 100 increased theirs, particularly among firms in the top 26-50, which increased staff by 7%.
Researchers said that across the top 100, the “anticipated average reduction” in hours they would be able to charge as a result of AI rose to 16%, from 11% in 2024.
“These evolving expectations underscore the urgent need for firms to re-examine and innovate their pricing strategies.
“Equipping partners with the skills to negotiate fees effectively in this transformed landscape will be critical. Without comprehensive education and engagement of partners, there is a real risk that pricing decisions could undermine both the performance and profitability of law firms.”
The belief among the top 10 firms that GenAI would have a positive impact on revenue or margins collapsed this year, falling from 83% to 33%.
The trend was not shared by the rest of the top 100, where the low rates of optimism seen in 2024 continued.
Researchers commented: “Despite previous optimism regarding the transformative potential of AI within the legal sector, there is now a discernible and growing apprehension about price erosion, as clients increasingly expect efficiency gains to translate into reduced costs and exert downward pressure on fees.”
All the UK offices of the Top 100 firms reported healthy increases in fee income, though the increases were not as large as in 2024 or as much as had been predicted for the top 50 – 8.1% for the top 10, just over 7% for those grouped 11-50 and 11% for the rest.
Female representation at partner level increased by three percentage points at top 51-100 firms to 30% and remained at 30% among the top 10.
Top 10 firms also led the way in ethnic minority representation at partner level, increasing this by three percentage points to 12%. The lowest rate, of 6%, was among firms in the top 11-25.
Mark Anderson, global legal and professional services sector leader at PwC, commented: “The largest UK firms remain financially strong but are increasingly focused on managing geopolitical risk, competition with the US market and the rapid evolution of AI.
“The performance of the smaller to mid-market firms is also encouraging.
“It’s clear that those firms who best execute growth strategies, adopt innovative pricing, invest in partner development and accelerate technology adoption will be best positioned to deliver sustainable performance.”