Solos and smalls excel in finding new business, but lag in turning it into billables: Clio report

Payment plans vastly enhance billables rate, says Joshua Lenon, Clio lawyer in residence

Solos and smalls excel in finding new business, but lag in turning it into billables: Clio report

While solo and small law firms have seen consistent business growth, their financial earnings do not fully reflect that, according to a report from Clio.

Clio recently released its 2024 “Legal Trends for Solo and Small Firms” report. The report found that, per lawyer, solo and small firms are bringing in more cases and clients than the larger firms but lag in collecting on their bills.

“They're bringing on more cases and more clients, but they're not necessarily improving their firm metrics to get the maximum boost from bringing in more cases and clients,” says Joshua Lenon, lawyer in residence and data protection officer at Clio.

Clio’s report is based on an analysis of aggregated and anonymized data from Clio products and a survey of 1,446 legal professionals.

According to the report, solo and small firms are taking on more cases and clients than in 2016, when Clio inaugurated its legal trends reports. Larger firms are taking on close to eight percent fewer matters per lawyer. However, since 2016, small and solo law firms have only captured eight and one percent more billable hours, respectively, while larger firms have captured almost 25 percent more.

All law firms have struggled with inflation over the last few years, but larger firms are raising their rates consistently enough to keep pace with it, says Lenon. Lawyers in solo and small firms have not, he says.

“In terms of actual earnings, they're making comparatively less than they were eight years ago.”

The report states that the consumer price index has risen 29 percent since 2016. During that time, lawyers at larger law firms responded with a 28 percent increase in fees, while lawyers in solo firms only raised their fees by 25 percent.

The report measures law firms’ utilization, realization, and collection rates. The utilization rate measures the percentage of an eight-hour workday put toward billable work. The realization rate measures the percentage of billable work invoiced to clients. And the collection rate measures the percentage of invoiced work that ends up getting collected.

The report found that since 2016, solo and small firm utilization rates have grown, but not to the extent enjoyed by larger firms. Solo firms have upped their utilization rate by 3 percent, and small firms have done so by 5 percent. On the other hand, larger firms have seen a 12 percent rise, and their utilization rates are, on average, 10 and 15 percent higher than those of small and solo firms.

While solo and small firms traditionally bested the larger firms on their realization rates, the larger firms are catching up. Since 2016, solos have boosted their realization rates by nine percent, while small firms increased theirs by seven percent. Over the same period, larger firms increased their realization rates by 12 percent.

Solo, small, and larger firms have all slightly increased their collection rates since 2016 – four percent for solos and small firms and five percent for larger law firms.

By examining data from its payment plan feature, Clio determined that payment plans result in a “tremendous increase” in billed and collected revenue. Clio reported a 27 percent increase in billings and a 71 percent increase in collections.

“We see that clients are actually actively looking for law firms that offer this type of flexibility in payments,” says Lenon.

Of the 1,012 consumers Clio surveyed, 82 percent said they want to pay law firms by credit or debit card, and 81 percent said they would find a payment plan option attractive. However, nearly 40 percent of solo law firms do not offer a payment plan option, according to the report.

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