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BTI Consulting: US legal market exceeds $100 billion

US legal market exceeds $100 billion
More than 600 people attended
BTI Consulting’s webinar titled “BTI Market Outlook and Client Service Review” according to Michael B. Rynowecer, the consulting firm’s president and CEO.  Both the slides and a recording of the webinar are provided below. 

It’s easy to understand why: the webinar, which ran about 90 minutes, was filled with metrics and data about the legal industry its researchers have been collecting and analyzing for a long time.  The data is based on in-depth interviews with 4,000 people in corporate counsel, 250 law firm partners and 200 business executives.

Here are eight high-level takeaways we heard by listening in:

1. US legal market exceeds $100 billion. Money changing hands in the U.S. over legal services has surpassed $100 billion in total.  BTI says there’s a roughly 60/40 split meaning about $60 billion is spent on outside law firms and the other $40 billion in-house.  Notably, corporate counsel has been increase its internal spend by about $6 billion over the last two years, which Mr. Rynowecer says indicates a substantive change in that businesses are bringing more work in-house.  Why?  He says that businesses have access to much more talent from partners that have left law firms while inside counsel is also seeking talent to solve legal trends like IP prosecution.  BTI says such shifts are usually temporary and it does not expect this trend to continue over the long-term.

2.  The global opportunity.  The shift to spend more in-house isn’t the only change in legal spending trends when examining the difference between the primarily US-focused Fortune 1000 and the Global 500. Mr. Rynowecer noted that the legal spending among the Fortune 1000 has been in a “slow decent” while the Global 500 legal spend has grown about 8% over the last several years.  He explained the hiring of law firms in the Global 500 is generally decentralized and business units are hiring firms as they pursue aggressive growth plans. As such the Global 500 makes likely prospects for law firms.  He suggested looking for those companies trying to grow business in three different countries at the same time.

This mirrors a trend we found in the Enterprise Legal Management Trends Report, BTI noted that firms outside of what it called the AmLaw 50, were highly competitive for such work.

3.  What is corporate counsel buying? In one slide, BTI segmented the industry by 16 different practice areas into a quad-chart that looked a little bit like Gartner’s Magic Quadrant. The areas of practice BTI says corporate counsel deems both a priority and have moderate growth were:  a) IP litigation b) class actions c) M&A and d) regulatory (there were no high-growth areas and average growth was characterized as 1.1%).  Mr. Rynowecer said the data was collected before the crisis of recent data breeches making headlines of late and this practice area will continue to draw legal focus. The “regulatory” area was categorized as a “mini-growth practice” as businesses struggle to understand the regulatory environment.  “Clients feel like they are being smothered” by regulations, he said.

4. The conflict between spending and matters.  The number of matters corporate counsel is managing continues to rise but clients are committed to keep total litigation spending flat. BTI says pointedly clients are looking to resolve matters at a lower cost through the aggressive use of strategies such as early case assessment, special settlements, aggressive budgets and budget controls. BTI suggests the law firms best positioned to win new work are those that meet monthly (or more) with clients in order to triage new matters as these matters emerge.  Mr. Rynowecer says those firms will a) have a better chance of winning the business b) be much more valuable to the firm and c) will help determine where the matters go from that point forward. Firms that help law firms set up a decision making framework will probably be at an advantage, he said.

5. Law firms can keep clients or “steal” market share. The average Fortune 1000 company spends roughly $33 billion on legal affairs where, as previously noted, about 60% of that goes toward outside counsel.  However this amount isn’t growing. BTI says there are no more “incremental dollars” coming into the market and to grow, law firms are going to need to “steal market share form someone else.” BTI’s given this economic cycle a name:  “Predator’s Paradise.”

6. Renewed focus on law firm marketing.  By their own assessment, law firms give themselves a score of 6.93 on marketing and business development and a 7.82 on client service (on a scale of 1 to 10).  BTI noted, “going out on a limb,” that most firms need to earn a grade of 8 or better to be competitive.  “By the law firms’ own accounting the challenge is how do we improve” our investments in marketing and law firm business development.

Separately, in a survey not associated with BTI, we’ve seen a renewed focus in business development, marketing and customer relationships. In fact, more than 60% of law firms plan to invest more in supporting technologies and programs like customer relationship management or law firm CRM.

7. What do law firms spend on business development?  BTI said that law firm marketing and business development budgets, broken down as a percentage of revenue, are as follows:

AmLaw 100: 2.42%
AmLaw 101-200– 2.57%
Outside AmLaw 20: 2.81%

Most notably, BTI has observed firms that fall within the AmLaw 100-200 have increased their law firm business development budgets and have shifted marketing strategies. These firms have deviated from the typical sponsorships and have focused on specific ways to reach prospective clients. We saw data early last summer that found the lateral moves among the second hundred were a trigger for a renewed focus on CRM.

8. Corporate counsel has 11 core law firms. BTI’s data indicates that just 11 core law firms earn 80% of the total work from inside counsel.  Generally, this work is spread among two primary firms, nine secondary firms and 36 additional firms handling “small, technical or routine cases.”

Again, the trend was amazingly similar to the findings in the ELM Trends Report (infographic) which found that corporate legal departments consolidate 80% of their work with just 10 firms.  Keep in mind, BTI’s source of data is thousands of in-depth interviews while the ELM Trends Report is based on roughly $10 billion in actual invoices process through the LexisNexis CounselLink system.

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Slides and Webinar Recording

 


Updated
: Please visit BTI’s blog post announcing the webinar for more information: Global Law Firms Change Their Stripes.  BTI Consulting can also be found on Twitter: @BTIConsulting.

Photo credit:  Flickr, Creative Commons

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About Frank Strong

Frank Strong
Frank Strong is the communications director for the LexisNexis software division located on NC State’s Centennial Campus in Raleigh. In this capacity, he leads communications efforts in support of software products for law practice and law department management and also litigation tools – across large law, small law and corporate counsel segments. With more than 15 years of experience in the high-tech sector, Strong previously served as director of public relations for Vocus, which developed marketing, PR and media monitoring software. He has held multiple roles both in-house with corporations, ranging from startups to global organizations, and has also endured the rigors of billable hours, having completed gigs at PR firms including the top 10 global firm Hill & Knowlton. A veteran of two year-long deployments, Strong has concurrently served in uniform in reserve components of the military for more than 20 years, initially as an enlisted Marine and later as an infantry officer in the Army National Guard. Strong holds a BA in Film and TV production from Worcester State University, an M.A. in Public Communication from American University, and an M.B.A. from Marymount University. He is a PADI-certified Master Scuba Diver and holds a USPA "B" skydiving license.