Key takeaways:

• • • Higher polarization is seen — Stable growth levels contracted across all segments, forcing them toward polarized outcomes and eliminating the comfortable stability seen in 2024.

    • Not all firms were equal — While some law firm segments experienced a downward migration toward underperformance, others demonstrated an exceptional upward trajectory.

    • A buffer may be in place — Those firms seeing declining performance tended to concentrate on modest negative levels rather than experiencing severe downturns, suggesting that current market conditions are creating a buffer against sharper declines.

While the ¶¶Òõ³ÉÄê® Institute’s Law Firm Financial Index rose in the second quarter of 2025 amid increase legal demand, the overall metrics suggested stability, with clients turning to their outside law firms for guidance. Indeed, the quarter looked unnaturally smooth.

Yet this surface-level tranquility masks a far more dynamic reality. We can examine how individual firms performed by calculating demand growth for each firm and grouping them into six buckets:

• • • severe decline (more than 10% decrease)
    • moderate decline (between 5% and 10% decrease)
    • modest decline (between 0% and 5% decrease)
    • modest increase (0% to 5% increase)
    • solid increase (5% to 10% increase)
    • exceptional growth (more than 10% increase).

When examining all law firm segments, the data distribution provides compelling evidence for a clear movement. The moderate increase range, which served as the stable foundation for law firm performance, experienced significant erosion as nearly one-quarter of firms were pushed out of this comfortable middle tier. The most notable trend shows industry dynamics driving firms toward two distinct outcomes: exceptional growth at the high end and modest decline clustered just below break-even.

Geography plays a key role in how firms are performing. More firms in the Northeast, Southeast, and Southwest regions are seeing strong growth, while firms in the Midwest and West are showing signs of slower performance and diminishing middle-ground results. Meanwhile, firms with international exposure faced volatility, especially among lower-growth ranges. Interestingly, this volatility seems to create a natural limit to how much performance can drop, helping some firms avoid more severe declines and show a measured response to outside pressures.

However, these overall trends hide important differences between law firm segments. Each group saw unique shifts, showing how similar conditions led to very different results depending on the firm’s size and market position.Ìý

Am Law Second Hundred: Polarization at the extremes

The Am Law Second Hundred responded differently to today’s market pressures. Instead of moving in a single direction like other law firm segments, firms in this group were pulled toward both strong growth and weaker results. The middle range, which was once more stable, has narrowed, and its share has been redistributed across the full spectrum of outcomes.

Many firms that were growing exceptionally fast are now settling into more stable performance levels, suggesting that earlier peaks may not have been sustainable. Rather than abrupt changes, the general trend is moving towards a more stable pattern, albeit with a concerning rise in the number of firms encountering significant declines.

Midsize firms: The upward trajectory

While the Am Law Second Hundred showed a more balanced spread of results, Midsize firms moved sharply upward. Market conditions pushed many of these firms into top performance, with the number of high achievers more than doubling. At the same time, fewer firms struggled with serious challenges. What stands out most is that many firms jumped straight from steady growth to exceptional results, skipping the usual gradual progress.

Current industry dynamics have helped many Midsize firms move from moderate to stronger growth. This change wasn’t the result of a new strategy, but rather the outcome of earlier investments in talent that now fit well with today’s environment. Further, Midsize firms more limited international exposure, stronger focus on litigation, and lower rates may be contributing to this standout performance that has set them apart from the next group of firms.

Am Law 100: The downward drift

The demand growth data for Am Law 100 firms shows a clear shift in how performance is spread. The biggest change happened in the moderate growth category, in which nearly half the firms were pushed out of what used to be a stable zone. This shift shows that more firms are ending up with weaker results, while only a few are seeing strong gains. The number of firms with declining performance has increased quickly, and those doing exceptionally well are too few to balance out the overall drop.

The way performance is spreading across Am Law 100 firms shows that steady, moderate growth is becoming harder to maintain. Factors like international exposure, slower hiring, and changes in client needs seem to be pushing firms toward either strong results or weaker demand, with fewer staying in the middle. These conditions are making competition within this group more intense.

The legal market’s current reality

In the second quarter of 2025, the legal market continued to evolve, with different types of firms reacting in their own ways to changing conditions. While the LFFI rose and pointed to general stability, beneath that surface, many law firms are being affected by new pressures: stronger competition, a differing client mix, and overexposure to certain markets — all of which are creating a wider gap between top performers and those firms on the lower rungs.

Focusing clients at the center of business decisions is becoming more important for long-term growth; and each segment-specific pattern demonstrates how firms are finding different pathways to achieve this goal. For example, Midsize firms are doing well, likely because their flexible operations fit the current environment; and the Am Law Second Hundred is holding steady, showing that a mix of business models can help those firms adjust to outside pressures. Meanwhile, the difficulties facing Am Law 100 firms seem to come more from structural shifts and adverse operating conditions than from strategic missteps.

The evolving dynamics within the legal industry suggest increased fluidity. Whereas law firm financial performance in recent years has been influenced primarily by broad macroeconomic trends, current conditions are shaped by volatile policies and geopolitical developments, resulting in diverse business conditions across clients, regions, and industries. These shifts present both heightened risks and new opportunities, making it essential for leaders of law firms of all sizes to assess their positioning in preparation for potential challenges ahead.

You can get a fully copy of the ¶¶Òõ³ÉÄê® Institute’s Law Firm Financial Index for the second quarter of 2025 here

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Midsize law firms at the start of 2025

Midsize law firms have experienced a prolonged period of growth, particularly in terms of demand for legal services. Year-end results from 2024 show that midsize firms are near the forefront of demand growth among all segments of law firms tracked by the Thomson Reuters Institute, a showing of strength in law firm key performance indicators (KPIs).

Another positive KPI is the continued growth of law firm productivity, which has continued to grow despite a 2.7% increase in headcount for the average midsize law firm over 2024. This is a notable achievement, given the nearly 15-year trend of declining productivity in the overall legal market.

Balancing rate growth and cost advantage

Midsize law firms are in the somewhat precarious position of needing to balance increasing their hourly rates to optimize revenue potential while simultaneously maintaining a cost advantage over larger peers. While midsize firms have been more aggressive in growing their rates compared to historical standards, it is notable that they have not pushed as hard as their competitors. While the more cautious approach has allowed them to maintain a cost advantage, it also means they might be missing opportunities for even stronger rate growth. As the report suggests, midsize firms should become more comfortable advocating for their higher billing rates. In fact, many midsize law firms have even gone so far as to implement tiered-rate structures to capture more value from new clients or new work from existing clients.

Further, the report shows that midsize law firms face challenges related to rising expenses. These increased expenditures, coupled with slower-than-market-average growth in rates, have somewhat offset the benefits of strong demand growth for many midsize law firms and placed a bit of a damper on their overall profitability. The average midsize firm has seen an increase in overhead expenses, with technology and knowledge management being key cost drivers. While these investments are crucial for long-term success, they have cut into profit growth. However, as the report emphasizes, these kinds of investments are also critical for firms that want to avoid falling behind larger firms that are leveraging advanced AI-driven tools to enhance their service offerings.

Indeed, innovation is a recurring theme in the report. Larger law firms have dedicated teams driving innovation in both internal processes and client-facing functions. Midsize firms, on the other hand, need to explore emerging technologies and find ways to incorporate them into their operations. Relying on outdated ways of working could put midsize firms at a disadvantage, especially as larger firms use technology to create more appealing and affordable service offerings.

Clearly, AI and technology are transforming the legal market, and midsize firms must keep pace with these changes. Corporate general counsel are increasingly looking to be early adopters of AI, and law firms that fail to recognize this shift can risk losing client favorability. Midsize firms should start by targeting low-hanging fruit and gradually adopting advanced AI tools to streamline workflows and enhance service delivery.

Conclusion: No time for complacency

Despite their recent successes, midsize law firms cannot afford to rest on their laurels. While they have enjoyed a period of demand strength and heightened productivity, the legal market is evolving rapidly. Larger competitors are moving aggressively towards an AI-driven future, and midsize firms must follow suit to remain competitive. Investing in technology, understanding client needs, and adopting innovative service models will be key to sustaining growth and profitability.

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However, at least one large area of concern looms for Midsize law firms that could well put a damper on their 2023 results — expenses.

We track and report two broad categories of expenses: direct expenses — those associated with attorney compensation and benefits (other than equity partners); and overhead expenses — those associated with everything else, from non-lawyer staff, to office rent and office supplies. In some areas of managing their expenses, Midsize law firms are outperforming the market average; in other areas, however, Midsize firms may need to be a bit more concerned.

Industry averages

The average law firm in the industry has experienced high rates of growth in both their direct and overhead expenses since early 2022. For the average firm, direct expense growth peaked at 13.1% in Q1 2022 as calculated on a rolling-12-month average. Overhead expenses for the average firm peaked one quarter later in Q2 2022 at 13.2%.

Across the industry, both metrics have been gradually decreasing from these high-water marks, settling at 6.8% and 7.9%, respectively, at the midpoint of this year.

For direct expenses, much of the prior high level of growth was driven by a combination of two factors: increasing attorney compensation and expanding headcount. Direct expenses have moderated in the past year because, while many law firms have continued hiring, the market has not seen an acceleration in attorney compensation akin to what was seen in much of 2021 and early 2022.

For overhead expenses, recent analysis shows that much of the jump was attributable to those expenditure categories more heavily impacted by the global pandemic and return-to-office volatility, most of which has now tempered out of the market.

Expenses for Midsize law firms

Midsize law firms appear to depart from these industry averages in a few key ways, including:

Direct expenses

The average Midsize law firm continues to experience direct expense growth that is higher than the industry average at 7.9% growth compared to 7.1% for the average firm. This is likely due to the fact that Midsize law firms are still feeling more of the two-factor push driving direct expenses compared to other law firm segments.

For example, the average Midsize law firm saw associate compensation grow by 2.2% in Q2 2023, on top of 7.3% growth in compensation at the same point last year. This means that associates at Midsize law firms have gotten much more costly over the past two years — along with other titles — and they continue to do so. While this will settle out over time, the extent to which compensation growth slows may not, by itself, be enough to offset the effects of the other factor driving direct expense growth, that of increasing attorney headcount.

As discussed in a prior installment in this series, Midsize law firms led the market in headcount growth through the midyear point, increasing attorney counts by an average of 5.1%. In contrast, Am Law Second Hundred law firms increased their headcount by a more modest 3.3%, and Am Law 100 law firms increase lawyer numbers by only 2.8% during the same time period.

For Midsize law firms, each of these new attorneys comes at an increased cost. Midsize law firms could be poised to show higher-than-market direct expense growth for some time, particularly as we near another hiring season.

Overhead expenses

The overhead expense picture, on the other hand, shows a bit more favorability to Midsize law firms compared to the market average. While average overhead expenses in the market grew by 7.9% through midyear 2023, the average Midsize law firm saw their overhead expenses grow by only 7.1%. Of course, in this context, only is a relative term; the figure still represents growth well above pre-pandemic averages, but it is better than that of other law firm segments.

The average Midsize law firm saw healthy, but more conservative growth in a number of key expense categories as compared to their larger law firm peers.

Specifically, Midsize law firms saw their expenditures in staff compensation, occupancy, and office expenses grow at a slower pace than their competitor segments, while also posting a more conservative mark for professional staff benefits than their Am Law Second Hundred counterparts.

On the whole, the overhead expense picture appears to be slightly more favorable to the average Midsize law firm.

With only a few exceptions, Midsize law firms have held a solid position of third among the three segments for overhead expense growth as calculated on a per-lawyer-FTE (full-time equivalent) basis. This is due in part to the more controlled growth of expenses in the key areas already discussed, but also to expanding headcount. While Midsize law firms should be commended for keeping expenses well in check, the per-lawyer-FTE comparisons are potentially a bit deceiving because Midsize law firms have been among the market’s most aggressive in increasing the denominator in that metric through their continuing hiring practices.

The effect on the bottom line

The warning flags waved by Midsize law firms’ expenditures, particularly their direct expenses, are not necessarily cause for great concern. However, leaders of these Midsize law firms would be well cautioned to consider how quickly fortunes can change.

Prior to 2022, the Am Law 100 had enjoyed their position as market leaders for demand growth for the prior five years or more. In 2022, that momentum quickly shifted in favor of Midsize law firms. It can just as readily shift back. If, or perhaps when it does, Midsize law firms may find themselves caught flatfooted with increased expenditures on a larger number of more expensive lawyers, but with insufficient demand to keep those lawyers sufficiently productive.

Any such potential drop in productivity would hurt a firm’s revenue potential, meaning the average Midsize firm would be bringing in less money even as its staffing costs remain high, a recipe for diminishing profitability.

Midsize law firms should be engaging their clients, new and existing, to understand why those clients chose the firm and what will encourage them to stay. At the same time, firm leaders should be looking at creating strategic plans for staffing, factoring in potential retirements and attrition, so that their overall staff remains engaged, productive, and profitable.

This is the fourth part of a series exploringÌýthe performance of Midsize law firms in 2023.

The segment continues to lead the market for demand growth. Even in the face of large headcount growth figures, productivity declines have been modest compared to the rest of the legal industry. And perhaps most notably, Midsize law firms have gotten much more aggressive this year when it comes to growing their worked rates.

Midsize law firms ended 2022 with worked rates growing by 3.8% — worked rates being the rates clients agree to pay to engage a new matter. Fast forward just six months and the average Midsize law firm has seen their worked rates grow by 5.1%. That is impressive acceleration from a segment that has historically been pretty conservative in pushing rate increases.

It’s worth noting that the Midsize law firm segment still resides in third place out of three segments in terms of rate growth, but it is on the heels of the Am Law Second Hundred after trailing by a full percentage point’s worth of rate growth at the end of last year (3.8% for Midsize firms compared to 4.8% for Am Law Second Hundred firms).

Further, Midsize law firms do not appear to be paying a demand penalty for raising their rates. As discussed earlier in this series, Midsize law firms saw demand for their services grow by an average of 2.8% through the midpoint of the year, well ahead of the other segments — growth that was largely driven by counter-cyclical practices. The confluence of increasing demand and accelerating rate growth has put Midsize law firms into an enviable position in terms of their potential revenue picture.

An under-discussed but valuable metric included in our key performance indicators is fees worked, which is essentially an analogue for accrual-basis revenue and measures the percentage change from one period to another in the product of hours multiplied by rates. With both demand and worked rate growth solidly in positive territory, Midsize law firms have found themselves with a sizeable advantage in terms of fees worked through midyear.

This would seem to be a positive story on all accounts; however, there is a strong potential for a blot on this otherwise rosy picture.

A potential wrench in the works

Midsize law firms have historically performed very well in terms of capturing their rates, a metric we measure as realization. For purposes of this discussion, let’s focus on realization as measured two ways: first, billing realization, or the percentage of the agreed rate the client is actually billed; and second, collected realization, or the percentage of the agreed rate the client actually paid.

In terms of realization, Midsize law firms occupy two different positions that would seem undesirable.

On one hand, Midsize law firms are close to the Am Law 100 in terms of the scale of the decline in their realization. The average Am Law 100 law firm has seen their collected realization decline by 1.5 percentage points since Q1 2022. Midsize law firms are close behind, seeing their average collected realization decline by 1.4 percentage points, but in one less quarter, because their decline started in Q2 2022.

On the other hand, Midsize law firms are the only segment tracked that have seen an uninterrupted decline since the slide started. Am Law 100 law firms saw an uptick in collected realization in Q4 2022, while the Second Hundred boosted realization in Q2 2023. For Midsize law firms, once their realization started to slide, there’s been no stopping it.

The decline of collected realization could hinder what was otherwise shaping up to be a banner revenue year for Midsize law firms. The fees worked metric, by its nature, does not take realization into account. Every drop in collected realization means that more of the work done to boost the fees worked metric will go unappreciated as it will not actually materialize into cash for the law firm.

Seeing a way out

This is not a fait accompli, however. There is plenty of the year remaining for Midsize law firms to make meaningful steps to recover their realization prowess.

Years of research has shown us that, contrary to popular opinion, most realization woes are not related to clients more aggressively pushing back on rates or invoices. Rather, collected realization tends to track in fairly close in parallel to the other realization metric mentioned above, billing realization.

Billing realization is much more a function of internal law firm behaviors than client influence. While clients control how much of an invoice they pay, the departure from the rate a client agreed to pay — ending with what the client is actually billed — is largely within the control of the law firm. More specifically, it’s on the partners who are responsible for billing on matters.

As you can see from the chart, with a few temporary exceptions, billing and collected realization tend to track together. Throughout the doldrums of the pandemic, law firms paid close attention to all aspects of their billing cycle, concerned about their own financial viability. As a result, realization steadily improved across the board from Q2 2020 until essentially Q2 2022. However, since the realization hit its peak, both billing and collected realization have declined.

The good news in this situation is that internal behaviors that drive down billing realization can more easily be influenced than client behaviors. This is evident from the pattern observed during the pandemic. Close attention paid to billing behaviors netted realization gains for the average Midsize law firm — a pattern of behavior that would be easy enough to restart. This would entail paying close attention to any discounts being offered, and particularly how much work is being proactively written down by attorneys within the firm. °Â±ð’v±ð on potential law firm profits.

Returning discipline to billing practices may not solve all realization woes for Midsize law firms, but any uptick in realization that resulted from additional financial discipline would be a good thing.

At the same time, even as realization slides, Midsize law firms are starting from a much stronger position given their more aggressive rate growth in 2023. For years, larger firms appeared to have subscribed to the belief that some sacrifice in realization was worthwhile if the end result was more aggressive rate growth. Put simply, growing worked rates by an additional 1 to 1.5 percentage points was worth the loss of a few tenths of a percentage point in realization.

If Midsize law firms are beginning to follow the same philosophy, that may well redound to their benefit. They just need to be cautious to closely monitor this process to make sure the math is still working in their favor.

This is the third part of a series exploring the performance of Midsize law firms in 2023.

In fact, Midsize law firms have drawn the majority of the benefit from the recovery of demand, at least so far this year.

The rise of countercyclical practices

Much of this success is due to the segment’s strong performance in what we have termed countercyclical practices — those whose fortunes tend to run counter to the overall economic climate, including bankruptcy, labor & employment, and litigation practices. Across the legal industry, bankruptcy practices saw an average demand increase of 5.7% in Q2 2023, followed by litigation at 4.0% average growth, and labor & employment at 2.4%, according to the LFFI report.

We can, however, break those numbers down more specifically to examine how Midsize law firms in particular fared compared to these industry averages. Doing so unveils some interesting additional insight as well as some otherwise hidden strengths.

Bankruptcy

Perhaps chief among countercyclical practices, at least in terms of top-of-mind consideration, is bankruptcy, which as mentioned, saw average demand growth of 5.7% in the second quarter.

The average Midsize law firm far outpaced this mark, however, posting impressive growth of 8.6% in their bankruptcy work for the quarter. This, in turn, brought year-to-date growth in bankruptcy practices up to 4.1% for Midsize firms, indicating that bankruptcy work is not only strong for that particular segment, but it may in fact be accelerating.

Litigation

While litigation posted a strong Q2 across all law firm segments, once again Midsize law firms enjoyed a position on the strong side of the average. The average Midsize law firm grew their litigation demand by an impressive 5.9% in the second quarter of the year, leading to 5.0% growth YTD.

Quarterly growth was bolstered somewhat by a slightly deflated 2022 baseline, as litigation in Q2 2022 contracted by 1.0% for the average Midsize firm. Yet even accounting for this softer baseline, the performance of Midsize litigation practices through midyear 2023 is indicative of real growth. Moreover, litigation tends to be a relatively lucrative practice that can be less susceptible to price sensitivity on the part of the client, at least to a certain level.

It is difficult to say how long the high tide of litigation work might last, but given that the economy remains unsettled, courts continue to work their way through a pandemic-driven backlog of cases, and Q2 litigation demand growth drove YTD practice demand performance up, it seems likely that litigation practices may be on the upswing for at least the foreseeable future.

Labor & employment

Labor & employment practices were perhaps the softest of the countercyclical practices for Midsize law firms compared to the market as a whole. The all-segments average growth for labor & employment practices was 2.4% in Q2 and 1.8% YTD.

In comparison, Midsize law firms grew their labor & employment demand by 3.3% for the quarter, but only 1.4% YTD.

For the average Midsize law firm, strong Q2 labor & employment performance would be encouraging. However, there is a question as to why the segment underperformed the market-wide average so far this year, albeit only slightly. That question notwithstanding, the fact that Q2 posted comparatively strong performance should be encouraging for leaders of Midsize law firms. Those same leaders would do well to explore whether they are doing all they can to capture labor & employment market share in a time of otherwise volatile demand for law firm services.

Corporate and transactional practices

General corporate practices could almost have been characterized as a sort of countercyclical practice for Midsize firms through the midyear point, although not as we’ve previously defined them.

Corporate work is certainly not generally characterized as a countercyclical practice, nor would we typically categorize it as such. However, corporate work for Midsize law firms has been following a sort of countercyclical pattern, at least lately.

While general corporate work has been flat for the average law firm (and contracting for the largest firms), it grew by 2.0% in Q2 2023, and 1.6% YTD for Midsize law firms.

Given the overall state of the economy, it seems unlikely that this is what we might characterize as net new legal work, or work that has not previously been performed by another law firm. Instead, it seems likely that this is yet another indication of the strength of the phenomenon of demand mobility, which we have written about previously.

This growth in corporate work was not enough to stave off overall contraction for Midsize law firms’ transactional practices, which contracted by 1.1% in Q2 2023, per the LFFI. However, it did help to place Midsize law firms in the strongest relative position of all tracked market segments. By contrast, Am Law 100 and Second Hundred law firms saw their transactional practices contract by 3.7% and 3.4%, respectively, for the quarter.

The impact of increasing headcount

Midsize law firms not only led the market in growth in several key practices, however, as discussed in the previous post in this series, the segment also led in lawyer headcount growth through the midpoint of the year, adding 5.1% more lawyers on average compared to Q2 2022.

The net effect of this growth in headcount blunted much of what could have been a very positive impact for Midsize law firms in terms of productivity. Even with positive performance spread across a number of practices, average demand growth of 2.8% was overshadowed by headcount increases, resulting in a 2.4% contraction in Midsize law firm productivity in Q2 2023.

Each individual firm will provide distinct and varied explanations for adding headcount, ranging from a continued need to improve leverage to a plethora of talented lawyers extricating themselves from the ranks of larger law firms and more. However, Midsize law firm leaders should ensure that growth in headcount is being handed in a thoughtful way as to minimize the potential negative impact it may have on lawyer productivity.

Further, as we will discuss in an upcoming series installment, each of these new hires adds a sizeable burden to the expenses side of a firm’s ledger, a factor which has an unavoidably negative impact on potential firm profitability.

Thus far, 2023 has placed Midsize law firms in a favorable position to retain their crown as industry demand-growth champions. A careful balancing of other strategic priorities can help leaders of these Midsize law firms translate this success into more broadly positive financial results.

This is the second part of a series exploring the performance of Midsize law firms in 2023.

Historically, we have produced a report on the state of Midsize law firms in our traditional report format. This year, however, we opted to forego the formal report and instead produce a series of blog posts examining the same data, but in a format that will hopefully make some of the information easier to find and more manageable.

We begin that series as we would the larger report, with an examination of key performance indicators (KPIs) and what these metrics indicate about the overall health of the Midsize law firm economy.

Performance at a glance

Demand

Even a brief look at market-wide KPIs provides a clear demonstration that nearly all of the growth in demand experienced by law firms this year has been to the benefit of Midsize law firms. The average law firm saw growth in their total billable hours — the metric we use to measure demand — of 0.8% in the first half of 2023. When we break down the analysis by law firm segment, however, we see an immediate disparity.

The average Am Law 100 law firm saw their demand contract by 0.6% while the average Am Law Second Hundred law firm posted flat demand compared to a year ago. At the same time, the average Midsize law firm posted strong demand growth of 2.8%. This continues a trend seen for several successive quarters now that shows Midsize law firms leading the market in demand growth.

This trend is notable not only for its length, but for its rarity.

Prior to the current streak, the last time Midsize law firms led the market in demand growth was the end of 2015. In 2016, a confluence of concerning factors — including a U.S. presidential election and the advent of Brexit — saw demand quickly shift toward Am Law 100 firms, with those firms experiencing the bulk of demand growth through 2021.

During that same period, Midsize law firms routinely found themselves in third place among three segments for demand growth. The relatively recent shift in fortunes has led to other positive benefits for Midsize law firms so far this year.

Revenue and rates

Fees worked is a metric we rarely discuss in depth, but it is worth a closer look given the strength of this metric for Midsize law firms. Fees worked is a metric meant to track revenue potential and is calculated by making a year-over-year comparison of the product of demand hours multiplied by worked rates (sometimes called agreed upon rates.)

For both Am Law segments, it’s clear that all growth in fees worked for the year is attributed to growth in worked rates. However, Midsize law firms are enjoying the double benefit of growth in demand multiplied by quite strong growth in worked rates.

Even with this being the case, it is worth exploring Midsize rate growth a bit more closely.

The average Midsize law firm posted 5.1% growth in worked rates, leaving them in third place among the three tracked segments. The strength of this pace of rate growth, however, is a function of the comparison being made. When compared to the historically high 7.3% worked rate growth for Am Law 100 firms, 5.1% appears somewhat meager. Yet, Midsize rate growth compares very favorably to Am Law Second Hundred firm as well as to historic Midsize rate growth performance.

Even a brief look at market-wide KPIs provides a clear demonstration that nearly all of the growth in demand experienced by law firms this year has been to the benefit of Midsize law firms.

Indeed, a mere six months ago, Midsize law firms posted 2022 worked-rate growth of 3.8%. The acceleration of rate growth to nearly match Am Law Second Hundred firms is a likely reflection of Midsize law firms feeling increasingly comfortable in their position within the legal market and flexing some of their newfound competitive power.

Increasingly aggressive rate growth does appear to be paying dividends for Midsize law firms in terms of their fees worked. However, as we will examine more closely in subsequent installments in this series, there are other potentially concerning factors of which Midsize law firms should be mindful that are related to potential declines in realization against those increasingly strong rates.

Lawyer headcount and productivity

Midsize law firms posted an aggressive lead in lawyer headcount growth through the midpoint of 2023. The average Midsize law firm currently has 5.1% more lawyers than at this same point a year ago. As we will explore in greater depth in a subsequent addition to this series, the consistently higher costs of attorney talent means that lawyer growth is placing a strain on Midsize law firm expenses.

However, the more immediately noticeable effect of this increase in headcount comes in its impact on lawyer productivity.

Strong demand growth for Midsize law firms was not enough to pull productivity into positive territory. The combined effects of market-leading demand growth and headcount growth resulted in the smallest productivity contraction of any segment. However, even the smallest contraction remains a contraction.

Given the strength of Midsize demand growth, there are opportunities to move productivity into positive territory. However, that would require a cooling of headcount growth to create more balance with demand. Midsize law firms have seemed consistently set on growing their headcount throughout the course of this year. The reason for this likely varies by firm, but some may be taking advantage of experienced talent being shed by Am Law 100 law firms, while others are likely still pursuing a longer-term strategy to improve leverage, traditionally a difficulty for many Midsize law firms.

Each of these themes bears more scrutiny and will be explored more deeply as this series on the current state of Midsize law firms continues in the coming weeks.

This is the first part of a series exploring the performance of Midsize law firms in 2023.