Large law firms became more expensive to operate and less profitable in 2022, despite growing in terms of revenue and head count. While equity partners took home less money, associate and nonequity partner compensation continued to rise. Rate increases managed to keep gross revenue in the black as demand slid by nearly 2%. Still, the profit margin for The Am Law 100 fell 2 percentage points to 42%, wiping out the profitability gains of 2021 and putting firms below the average 2020 profit margin of 43%.
“The margin on the billable dollar is contracting, and that is causing law firms to increase their rates, and that is why GCs are saying, ‘Hey, maybe we bring this work in-house,’” says Aon Law Firm Advisory Team manager George Wolf.