The Law Firm Business Outlook 2025
As we stand at the beginning of 2025, the legal industry finds itself at a crossroads, poised for transformation that could redefine the very essence of how law firms operate. Drawing insights from LegalTech’s comprehensive analysis, it’s clear that the coming year will be a crucible for innovation, adaptation, and perhaps a touch of trepidation.
Newer law firms building their practices and entrepreneurial boutiques and firms are increasingly challenging the old way of working.
The Salary Conundrum
Associate salaries and rates have skyrocketed to unprecedented heights, leaving many to ponder the sustainability of the rapid rates rises and the evolving remuneration models for legal talent.
The key question many are asking is whether there is a fundamental redistribution of corporate legal spend looming on the horizon?
The Legal Tech summary looked at some of the key issues that have arisen and just what we can expect to happen in the year ahead.
The first big query is just where AI is taking the profession.
AI: Equalizer or Disruptor?
The advent of generative AI isn’t just knocking at the door; it’s threatening to blow it wide open. The AI technological juggernaut is challenging age-old law firm structures and business models, promising far-reaching automation that could revolutionize the industry.
Anthony V. Lupo, Chairman of ArentFox Schiff, predicts a stark divide: “2025 will bring market segmentation between law firms that know how to leverage AI to enhance the work of lawyers and those who do not grasp the many benefits of the technology”.
The Talent Tug-of-War
The job market is evolving at rapidly, with professionals wielding different values and expectations than their predecessors. Law firms find themselves in a fierce battle for talent, necessitating a reevaluation of their cultural DNA.
The lateral hiring efforts, re-worked compensation structures like the ‘black box’ pay and other initiatives are both challenging and threatening the Big Law firms – while the boutiques continue to expand their pay offerings also, which is also challenging the major law firms.
Experimentation: The New Normal
In response to these seismic shifts, many firms are expected to dabble in alternative business models and partner pay structures.
However, the million-dollar question remains: Will 2025 be the year that catalyzes more radical changes, such as the evolution of legal regulations, or will progress continue at its historically glacial pace?
The Great Redistribution
Chris DeConti, Co-Founder and Head of Strategy at Factor Law, (pictured) has little doubt about the redistribution moves. “After 20+ years of false starts, 2025 promises to be the year where redistribution of the $500 billion global corporate legal market actually begins”.
This redistribution could see innovators adept at integrating AI into transactional work carving out a larger slice of the pie.
The Rise of Hybrid Models
Jack Rives, President of Rocket Legal Professional Services, foresees a nuanced approach: “2025 will see the rise of strategic adaptations designed to achieve ABS-like outcomes without directly challenging existing rules”.
This could manifest in partnerships with technology providers and the establishment of consulting branches to expand expertise.
Data-Driven Decision Making
Laura Saklad, Legal Industry VP at Intapp, is also quoted in the Legaltech report, predicting a shift from data consolidation to data analytics:
“2025 will be the year that law firms shift their focus from data consolidation and data hygiene to data analytics and enabling data-driven business decisions” It is a transition that will impact everything from client selection to lawyer retention.
The Pricing Paradigm Shift
Matthew L. Miller, Senior Vice President at HaystackID, anticipates a revolution in pricing models: “The cost of legal services will evolve in 2025, with law firms increasingly using AI to reduce operating costs and offer more competitive pricing”.
This could lead to subscription-based services and flat-fee models becoming more prevalent. It is a trend that is already taking hold with law firm increasingly embracing fee arrangements different from the traditional fee structures like the lockstep model.
Q&A
Q: How will AI impact law firm hiring in 2025?
A: AI is expected to create new high-end legal jobs while potentially displacing traditional roles, leading to a shift in the types of skills and expertise law firms will seek.
Q: What changes can we expect in law firm pricing models?
A: Look for an increase in subscription-based legal services and flat-fee models as firms leverage AI to reduce operating costs and offer more competitive pricing.
Q: How will data analytics influence law firm operations in 2025?
A: Data analytics will play a crucial role in decision-making across various aspects of firm operations, including client selection, lateral recruiting, and lawyer retention.
