Trends for the Business of Law in 2025

Context: forces reshaping the legal landscape

Competition intensifying

Competition in the legal sector is fiercer than ever, driven in part by the aggressive expansion of US-founded firms into the UK market. According to data reported by the Financial Times, firms like Kirkland & Ellis and Paul, Weiss, Rifkind, Wharton & Garrison were among the most prolific recruiters in 2024. This trend includes 155 lateral partner hires, signalling a continued “war for talent” and the erosion of traditional distinctions between UK and US firms. The result is a competitive environment where even the most established firms must work harder to attract and retain top talent while proving their value to clients.

Salary inflation

Rising salaries are another challenge reshaping the sector, largely driven by the expansion of the traditionally higher-paying US law firms. Magic Circle firms have increased their newly qualified (NQ) lawyer salaries to £150,000, while leading US firms operating in London are offering up to £180,000. This salary inflation has sparked concerns about sustainability. As one managing partner told the FT, “It is insane what we are allowing to happen with NQ pay… the more firms are paying for NQ lawyers, the less margin for error you have [with who you hire and their development].” For many firms, these salary pressures necessitate a sharper focus on profitability and operational efficiency.

Macroeconomic pressures

Interest rates remain high, with no significant reductions expected in 2025. This sustained increase continues to fuel a focus on cash generation in a sector traditionally reliant on debt. Firms are recalibrating their financial strategies to account for higher borrowing costs and the need to maintain liquidity in uncertain economic conditions.

Deal-making revival

On a brighter note, dealmaking activity is widely expected to pick up pace in 2025. This revival in corporate transactions and real estate activity could provide much-needed relief for law firms, whose fortunes are closely tied to these sectors. After several years of uneven demand, many firms are gearing up for a more active market, which may also create opportunities to recover from the margin pressures of recent years.

The impact of AI and emerging technologies

The advance of artificial intelligence (AI) and new technologies presents both opportunities and challenges. Many firms are still grappling with how these tools might disrupt traditional service delivery models. AI has the potential to revolutionise legal research, document review, and even the prediction of case outcomes. However, these technologies also raise questions about the role of lawyers, billing structures, and how firms differentiate their services in a tech-enabled world. As the adoption of generative AI grows, firms must tread carefully, ensuring they balance innovation with maintaining trust and quality.

How law firms are responding

Faced with these pressures, law firms are rethinking their business models and investing in new capabilities to ensure resilience and profitability. Below are some of the key strategies being deployed.

Focus on matter-level profitability

Profitability is increasingly viewed through a granular lens, with firms prioritising matter-level performance. This shift manifests in several ways:

• Systematic pricing approaches: Firms are adopting more sophisticated tools and processes to align pricing strategies with client expectations and matter complexity.
• Enhanced commercial management: From staffing to client relationship management, firms are scrutinising their operations to maximise efficiency and client value.
• Improved cost control: By examining the true costs of delivering legal services, firms can better allocate resources and avoid underpricing high-risk or labour-intensive matters.

Professionalising the business side of the firm

Historically, lawyers have played dual roles as both practitioners and business managers. However, firms are increasingly separating these functions to improve operational efficiency. Key developments include:

• Investing in commercial finance teams: These teams provide lawyers with insights into the business management of their matters, helping them make more informed decisions.
• Centralising administrative activities: Firms are streamlining processes such as billing, collections, and resource allocation to free up lawyers’ time and improve overall efficiency.

Investing in business-of-law technologies

Technology investments remain a cornerstone of modernisation efforts. A significant focus is transitioning core practice management systems (PMS) to the cloud, creating a foundation for advanced solutions that address specific challenges. Some areas of particular interest include:

• Next-generation pricing tools: These systems help firms set competitive yet profitable rates by incorporating data-driven insights.
• Commercial matter management tools: Designed to track and optimise matter performance, these tools support better decision-making at every stage of a legal engagement.
• Bill dispatch solutions: Firms are automating invoicing processes to improve accuracy and reduce administrative burdens.
• AI on time datasets: Deploying AI on historical time and billing data is an area of increasing interest. These technologies promise to identify patterns, predict outcomes, and enhance decision-making across various operational domains.

Rethinking the billable hour

While the billable hour remains dominant, there is growing recognition of its limitations. Alternative fee arrangements (AFAs) such as fixed or capped fees are becoming more common, but they often still reference the billable hour indirectly. Some forward-thinking firms are exploring more radical departures from time-based billing, particularly in light of generative AI’s potential to reduce the labour intensity of certain tasks.

Still, opinions on this evolution are mixed. As one senior partner quipped, “The billable hour will kill AI,” highlighting the challenges of balancing traditional revenue models with emerging technologies. Whether 2025 will mark a true turning point in billing practices remains to be seen, but the conversation is undoubtedly gaining momentum.

Conclusion

The business of law in 2025 will be shaped by a confluence of competitive pressures, economic realities, and technological advances. For UK BigLaw firms, navigating this complex environment requires a combination of agility, innovation, and a willingness to challenge traditional practices. By focusing on profitability, professionalising operations, and investing in the right technologies, firms can position themselves to thrive in the years ahead. While the path forward is not without challenges, it is also rich with opportunity for those willing to embrace change.

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