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The legal sector is notoriously resilient. It was one of only a handful of sectors that turned a profit during the height of the pandemic, and the sector has reported growth through the economically and politically volatile year that was 2022.

The , which collects financial data from 155 small and medium sized solicitor firms, found 75% reported year-on-year growth in fee income in 2022, with 46% seeing growth of more than 10%.

When we asked our respondents how they feel their firms will fare in the next 12 months, almost half (46%) said they're expecting to grow, while just over a third (38%) said they're predicting stability.

This marks a noticeable drop from 2022's growth prediction (51%) and a significant drop from 2021's (66%), while the number of respondents who said they don't know has risen steadily. Respondents predicting a decline has also slowly risen.

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"The previous Bellwether surveyed the legal market during the post-lockdown legal boom and prior to the cost-of-living crisis, so this shift in sentiment is understandable" says Debbie Sumner, go-to-market advisor for small law firms and solo practitioners at ³ÉÈËÓ°Òô. "Yet it's still remarkably positive given our current economic climate."

While law firms large and small are bringing in tidy profits despite the many challenges being thrown their way, it's easy to forget that these smaller firms are often the most vulnerable. In the year ending 30 June 2022, , which have become so high they're taking up large chunks of firms' profits.

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In fact, many are all too aware of the fact that they will need to bring in new business in the next 12 months, with 81% of respondents citing attracting new business as a challenge (41% listed it as quite significant).

When it comes to enacting growth, the respondents who said growth is on the cards plan to do so by acquiring new clients or gaining more work from their existing clients rather than through the mergers and acquisitions (M&A) route. Only 13% of respondents said they plan to grow via M&A compared to 16% in 2022 and 15% in 2021.

Many also planned to invest more time and money into their business development strategies (88%) and marketing activities (81%). This is a marked rise from the 2022 Bellwether survey, which found only 24% of small law firms planned to increase their investment in marketing.

Traditionally, law firms tend to grow by merging with or acquiring other practices. But there's a strong interest in law firm growth through organic means, which hints at a newfound sense of confidence in the smaller end of the legal market.

Rita Gupta, managing director and solicitor at LGFL Ltd, has applied a holistic approach to her firm's marketing strategy, with online, social media and PR activities all centred around providing informative and useful content.

"Be everywhere – and be helpful," she says.

She also pointed out the power of testimonials. "Get as many as you can. This takes time and effort, and has to be a part of a longer term marketing campaign. It's admittedly much easier with an already established reputation."

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Another important tactic to drive growth is through the hiring of additional staff. Three-quarters (76%) of respondents said this tactic will be very important or important in driving new business.

While many firms have invested in a business development or marketing function to drive organic growth, the majority still rely on their fee-earners to generate new business – meaning talent acquisition and retention is paramount to growth.

Of the law firm leaders we spoke with, 60% said they have increased salaries, bonuses and incentives in the last 12 months, while 25% said they haven't changed it.

However, less than half of respondents (48%) said they're happy with their current salaries while almost a quarter (24%) said they were unsatisfied or very unsatisfied. Only a third (33%) of respondents said they were happy with their bonuses, while just over a fifth (21%) said they were unsatisfied or very unsatisfied.

Zoë Bloom, partner at London-based family law firm, BloomBudd, which was established in 2022, says her team gain new business by reputation through trust and referrals.

"Nobody ever really knows when we will be needed so keeping a profile up to date is important, as is staying in touch with our contacts regularly.

Bloom has also recently introduced a scheme whereby any fee earner who introduces work retains 25% of the fees for the work they introduce.

"We hope this will help them build their own practices from an early part of their career," she says.

Smaller firms can also attract and retain staff by offering a flexible work-life balance, learning and development opportunities, and a positive workplace culture.

Almost four out of five respondents (79%) said they were happy with their law firm's culture. More than half (57%) said they were happy with their work-life balance. Almost two-thirds (60%) said they were satisfied with the training opportunities on offer at their firm.

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The downside of failing to offer staff a good work-life balance have never been clearer. The Great Resignation is proof of this, with many promising lawyers switching roles or leaving the industry altogether. Others are staying put but becoming disengaged, doing just what they need to and nothing more in a different trend known as the Quiet Resignation.

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While fewer firms are anticipating growth than in previous surveys, it's reassuring to see the number of firms taking ownership of the tactics used to generate growth. The business owners that invest in a well-polished marketing and business development function will surely have an upper-hand when attracting new clients in today's increasingly-competitive legal landscape.

Small law firms pride themselves on their high-touch client experience – it's one of their biggest advantages over their larger rivals.

Most of the lawyers included in our survey felt as if their law firms enabled them to provide a good service to their clients – 88% said they were quite or very satisfied.

Yet, interestingly, almost four-fifths (79%) of respondents said retaining current clients will be a challenge for the next 12 months.

These findings could hint that smaller firms are worried about losing clients in today's economically challenged environment, says Sumner. "It could also suggest that client needs are evolving and they're worried about keeping pace."

Client retention was of huge importance to the respondents in our survey. Going back to our earlier question about growth, of the respondents who said their law firm will likely grow, 83% said they would do so by gaining more work from existing clients. Of the respondents who predicted stability, all respondents said they would do so by providing a good customer service.

Putting yourself out there for your clients and understanding their goals engenders a lot of loyalty, says Rosalind Connor, managing partner at Arc Pensions Law.

"One of the wisest things I was told as a young lawyer was not to get so focused on getting new clients that you forget about the actual clients who are loyally with you right now." 

On the other hand, focusing on client relationships shouldn't come at the expense of value delivered. According to Andy Cooke, general counsel at business travel firm, TravelPerk, many law firms still operate on the outdated belief that clients care more about having a high-touch customer experience than other more important metrics.

"I don’t want high-touch outreach, I want a solution. As a customer, I want speed and convenience," he said.

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According to Gupta, legal technology can be a useful aid in meeting the needs of modern clients, helping with everything from customer communications, to administrative tasks, to data gathering and analysis.

"An investment now in specific legal technology, such as a client CRM system, lays the foundation for future business growth and expansion."

Change is never comfortable, but the firms that push themselves to innovate to improve their client offering with the best tools, products, service lines and people will be better for it.

New platforms, tools and technology are being introduced to the legal market all the time, and often with a hefty price tag – it's easy for even the most cutting-edge of law firms to fall behind the times.

But leaving your lawyers to rely on outdated legacy systems and old-school processes will cost you more in the long run.

Four-fifths (81%) of respondents said keeping working practices and systems up to date will be a challenge in the next 12 months.

Recent times have made everyone think carefully about the systems they should have, says Connor.

"There is always a balance between wanting to be at the forefront of changes, and following fads that burn out."

To aid in the decision-making process, Connor suggests following two basic rules.

"Talk to your staff, to your partners and your clients about what they want, and keep talking because the answers will change!" she says. "And never, ever invest in something you don’t understand."

Despite this strong awareness of the need to invest in working practices and systems, only 24% of respondents have any actual plans to implement new technology in the next 12 months.

A lot of the work is going into simply maintaining systems, as opposed to furthering them. Law firms owe it to themselves, regardless of their size, to invest in the systems and platforms that will enable them to do their jobs better, quicker and without the added stress.

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Having the right tools, and getting the personal benefit of those tools, means more focused legal professionals and better value for clients, says Ashkhan Candey, managing partner of litigation law firm, Candey.

"Considering technology investments that directly impact the well-being of overworked legal professionals is a cornerstone of happiness and success." 

"Failure to invest in solutions to problems, whether process or systems, will result in lost time, more stress, lost talent and ultimately, lost clients."

When we asked our respondents what systems they have in place, almost three-quarters (71%) said they have a platform to manage cases and client information.

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Small law firms also expressed a heavy reliance on free and paid legal research and guidance. Just over two-thirds (67%) said they used free or paid legal research tools (e.g. Lexis+, legislation.gov.uk or the Law Society), and just under two-thirds (64%) said the same about legal guidance tools.

We also asked respondents what aspects of legal research and guidance appeals to them the most. The majority (70%) said accessing up to date content, followed by accessing trusted and reliable sources (68%).

Increasing efficiency and saving time were also listed as attractive advantages. When asked how much time per week legal research and guidance should save them, the majority considered up to four hours per week as worth the investment.

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Looking at plans for technology investment in the next 12 months, the most commonly selected answer was client-facing online portals for matter updates, which can save lawyers a significant amount of time going back and forth, and can improve the customer experience. 11% of respondents said they had plans to invest, while less than a quarter (24%) had already invested.

Maintaining a high level of alertness and open-mindedness towards working practices and systems can be more valuable than getting everything right to begin with, says Connor.

"A good managing partner is always looking for signs that they need to change their approach, as no one can get it right the first time around, or all the time. But we ought to be able to reverse when we make a mistake, something that is much easier in the simpler structures of small firms."

Times are tough and business owners would be right to be weary before throwing cash at a problem in today's climate. Yet, if the last few years have taught us anything, it's that staying stagnant is far more dangerous than taking a calculated risk to invest in a system, process or tool you know your people will benefit from.

The top 100 law firms pour a great deal of time and money into refining their client offering, with innovation and tech hubs, AI-powered technology, and entire teams of niche, subject-matter specialists.

Yet, it's the smaller firms that are leading the way in offering flexible payment options, such as fixed, capped or flat fees, that works for the client rather than for the firm.

Only 8% of respondents from the Bellwether survey said they charge exclusively by the hour, and of that group of hold-outs, almost half are considering introducing alternative billing arrangements.

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This is drastically different from the wider legal market. According to a 2021 survey of law firms with 100 or more fee-earners by tech firm , 43% of UK law firms said they are offering alternative fees like fixed or capped fees to clients (up 28% from 2020).

While many larger firms are making the switch to more flexible billing models, small firms have been using alternative fee arrangements for a long while now.

Geraldine Morris, who practised family law for 15 years before moving to ³ÉÈËÓ°Òô to head up their Family Law news desk, says funding has become more challenging for smaller firms in the last decade and further exacerbated by the current cost of living crisis.

"As a consequence, some more creative funding solutions have come to the fore, with ‘pay as you go’ or ‘unbundled services’ more commonplace, although a degree of caution is recommended by the Law Society, as highlighted also in recent case law in relation to the negligence risk."

The majority of small law firms are offering a mix, and while the billable hour is still the most commonly used (75% of firms offer it), fixed fees are almost as common, at 60%. Flat fees, retainer fees and capped fees are also commonly offered, at 28%, 22% and 20% respectively.

Interestingly, although perhaps not surprisingly, almost two-thirds of respondents (60%) said they offer alternative fees to meet the existing demands of their clients, while almost half (48%) said they did so to appeal to new clients. There's also a growing awareness of the cost saving benefits of alternative fees.

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A family law specific example, says Morris, is for divorce proceedings.

"Fixed fees for a divorce suit and even more straightforward financial and children proceedings in family cases may also be adopted, along with 'blended rates' where different levels of lawyers may work on a case."

Morris also points out that Solicitors Regulation Authority (SRA) price transparency rules apply in many areas covered by smaller firms.

The decision for small law firms and solo practitioners to offer more flexible payment options may have been driven by client demand, but it shows their willingness to understand their clients' needs and provide a highly-personalised service.

There has been talk of new advances in AI-powered technology causing widespread disruption across the legal sector for a while now – particularly on the consumer-facing end of the law.

Yet no-one could have predicted just how quickly generative AI chatbot, ChatGPT, would have taken off.

In February 2023, just two months after launching, and the platform reached . For comparison, it took TikTok approximately nine months to achieve the same number of users, and Instagram more than two years.

For lawyers, generative AI presents a number of time-saving benefits. A March 2023 US-based ³ÉÈËÓ°Òô study found 84% of the 1,176 lawyers surveyed believe generative AI tools will increase the efficiency of lawyers, paralegals, or law clerks. When asked about the specific ways they'd like to use generative AI tools, the majority of respondents said increasing efficiency (61%), researching matters (59%), and drafting documents (53%).

When it comes to using generative AI for legal sources, small law firms and solo practitioners in the UK are still on the fence. Fewer than a quarter (24%) of respondents in our Bellwether survey said they would currently consider using free AI sources instead of paid, while exactly a quarter said they wouldn't consider it (25%).

However, the majority (51%) seem to be unsure on their stance towards it and may require some more convincing.

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"Relying on free generative AI tools, in their current state, for legal sources or to generate documents could do lawyers more harm than good," says Sumner.

"The legal sector needs generative AI solutions that can search, summarise, and draft documents from trusted, authoritative legal sources instead of the open web."

We also asked the 24% of respondents who said they would consider using generative AI for legal sourcing what level of risk they would be comfortable accepting in exchange for convenience and accessibility. The majority (63%) thought under 20% risk to be reasonable for accessing inaccurate or incomplete sources. Only 10% would accept a high risk between 81-100%.

Another point to note – while most lawyers aren't quite ready to use free generative AI for legal sources, its rapidly rising popularity amongst the wider population will no doubt generate a lot of work for some.

"We shall see loads of litigation arising from a monkey in charge", says Candey.

Advances in generative AI comes with a lot of promise to those in the legal sector – and this technology will undoubtedly result in a great deal of time saved for lawyers at smaller firms in years to come. However, the industry is notoriously risk-averse – and rightly so. Most will need some further convincing before trust can be established.