Future Law

Opportunities for Small Law Firms Willing to Innovate, According to Thomson Reuters Survey

man holding a light bulbSmall law firms continue to struggle with administrative tasks and new business, but few are taking meaningful action to address these challenges, according to the Thomson Reuters 2020 State of U.S. Small Law Firms survey. This inaction creates opportunities for small firms willing to take the lead in innovating their service delivery models.

In its fourth report on the state of the nation’s small law firms, Thomson Reuters surveyed more than 400 solo and small firm lawyers in April and May 2020. The survey found that in spite of societal upheaval due to the COVID-19 pandemic, the operations of many small law firms remain relatively unchanged. And, although the majority of these firms consider themselves to be successful (95%), firms that are willing to streamline their processes and adopt technology to improve operations may differentiate themselves in a competitive market.

Administrative tasks impede legal work

Small firm attorneys continue to report that they spend too much time on administrative tasks rather than practicing law (74%). Small law firms, on average, report spending only 60% of their time on client work. This number is in line with data reported in 2019, underscoring that small firm lawyers still face obstacles in finding time for activities for which they will be paid. This isn’t as common in larger firms, which benefit from allied professionals who manage functions like IT, marketing, and billing.

While 64% of survey respondents said spending too much time on administrative tasks has challenged their practice, just 20% have implemented plans to reduce administrative workload. And although 30% of firms said they plan to increase investment in technology and infrastructure, few said the investment will be in software to address their administrative burden.

Currently, just 25% of respondents use practice management software, 25% use rules-based docket/calendaring software, and 14% use matter budgeting and cost tracking software, all of which could help support internal efficiency, according to the report.

“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,” the report says.

Finding time for new business

As in previous reports, small law firms continue to cite challenges in acquiring new business (76%). For lawyers who are dedicating time to administrative tasks on top of practicing law, the window for new client acquisition is small. However, similar to administrative tasks, few firms (29%) have implemented processes to address this challenge.

Free listings in online directories, social media advertising, and reputation management are the most common marketing activities used by small law firms. Just 12% of respondents report using customer relationship management software. A larger majority (25%) has implemented client intake software.

More than half of respondents haven’t changed their marketing budget in the past three years, and 50% don’t plan to. Thirty-three percent of solo attorneys said they don’t engage in marketing or advertising at all. At the same time, few firms report plans to cut their marketing budget over the next three years. However, it should be noted that the ongoing COVID-19 pandemic could result in reduced marketing budgets.

In the face of potentially tightening resources, firms can find opportunities to maximize their assets by focusing on a robust integrated marketing strategy, which may result in higher returns, according to the report.

Billing challenges

One in five small law firms (19%) cite getting paid by clients as a significant challenge, up from 14% in 2019. This uptick could be a result of COVID-19, as well as a lack of financial backend and payment systems, the report says. This is consistent with the ongoing reduction in monthly billing volume since February 2020 in comparison to previous years, as reported by Clio’s real-time industry data. Billing challenges can be felt most severely by firms with 10 or fewer attorneys, who are less likely to have staff dedicated to billing and collections.

However, getting paid by clients is the challenge small law firms are most likely to address, according to the report. To increase profitability, more than half of respondents (52%) report increasing billing rates. Seventy-four percent report using time and billing software, and 36% use eBilling software, indicating investment in the area. At the same time, only 14% have changed billing practices, like executing alternative fee arrangements rather than hourly billing.

Respondents most frequently reported reducing costs (65%) and improving the quality of service (57%) as the primary drivers behind operational change.

“Small firm lawyers have unique challenges, as they are oftentimes not only lawyers but also small business owners and managers in running their practices,” said Mark Haddad, general manager of the Small Law Firm business for Thomson Reuters, in a press release. “Juggling those roles reduces the amount of time spent practicing law. At the same time, the lack of action by many firms in addressing those challenges means opportunities for competing firms to gain ‘first mover’ advantage by streamlining processes and adopting new technologies to improve efficiency.”

The complete 2020 State of U.S. Small Law Firms report can be found here.

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