2019 was a breakthrough year for legal technology companies, seeming to affirm that technology is changing the ways that lawyers work and that law firms operate. Investors have seen a legal tech industry that is maturing with software and technologies that are ready for use as soon as they are implemented at law firms. In short, these are exciting times for legal technology companies and those that have been developing ideas on how to make the legal industry work better for all types of clients and lawyers.
But are law firms seeing the benefits of implementing technology on the bottom line? At the same time as the rise of legal technology, the legal sector has seen a decline in demand for services. Can law firms adopt technology and increase profits even with the headwinds in the industry? The answer appears to be that law firms cannot afford to not adopt technology if they wish to remain profitable.
In the leading survey by Wolters Kluwer, the 2019 Future Ready Lawyer Survey, law firms that were leaders in technology adoption also were more likely to report increased profitability. Investment in technology was seen to have direct correlation to law firm profits. This is a significant break point and aligns with what investors have been seeing in legal tech providers – that technology adoption is having a direct impact on law firm performance.
This is all great news for the legal tech ecosystem. Law firms buy technology and make more money leading they to buy more software which allows the software companies to expand, which make investors happy and attracts new investors. This should also be good for legal clients who benefit from better quality legal services done more with more efficiency. These developments do beg the question “why now?” since many legal tech tools have been around for many years.
Looking to Europe where legal tech adoption has outpaced adoption in the United States for many years, the “why” becomes clear – client demand for predictable bills. As the billable hour, long the norm for billing clients, became less acceptable for European clients, European law firms found ways to become more efficient to improve profits while providing clients with the predicable, reasonable legal bills they demanded. US law firms have been slower to adopt these technologies as clients remain willing to pay bills based on the billable hour, though this is changing.
In recent years, US clients have more frequently demanded budgeting and alternative fee arrangements with their law firms. Clients have also found and increasing number of ways to bring legal work in-house to avoid using law firms in the same way as they have in the past. All of this means that even if the billable hour is still the principal billing method, US firms are going to start to adopt the methods and tools European law firms have been utilizing for much longer to remain profitable.
Of course, buying every tool on the market will not in and of itself make law firms more profitable. Choosing the right tools and implementing them into your firm’s workflow is the most critical element for legal tech to increase law firm profitability. As a rule of thumb, start with technologies that with a direct impact on clients to see profits improve quickly. Implementing a client billing tool like Accurate Legal Billing will mean that law firms are billing clients appropriately and according to their guidelines resulting in quickly approved and paid invoices. Adding another tool like a centralized timekeeping system that then feeds into client billing and budgeting tools can compound the improvements to law firm finance functions and will directly improve law firm profits. Building a suite of technologies focused on clients is the fastest way to see improved profits and to gain internal adoption.
Legal tech is booming and helping law firms to remain profitable even with increased competition and declining demand for services. The law firms that are investing in technologies are the firms that are seeing the highest levels of profit increases. By being thoughtful and choosing the best technology options from the many options and offering on the market today, law firms that are willing to make investments can increase their profits while improving service to clients.