The annual law firms' survey from PwC found that the average hourly rate among the top 10 outfits in Britain climbed to almost £500. (iStock.com/Yau Ming Low)
Increases were more restrained further down the rankings. Firms ranked between 11 and 25 lifted rates by 3.4% to £336, while those in the 26 to 50 bracket moved up by 3.2% to £289. Firms in the 51 to 100 group boosted rates by 6.1% to £262.
While 95% of all firms surveyed reported a growth in fee income, the firms ranked between 51 and 100 posted the strongest rise at 11%, despite smaller rate hikes.
But PwC warned that the current pace of growth might not last.
"Prevailing market conditions have prompted clients to scrutinize their cost structures more closely, often seeking greater efficiencies from all service providers, including legal advisors," the report warns.
This might not immediately affect rates, but securing significant increases could become harder, the Big Four consulting firm said in the report.
"Further, the growing adoption of technology is poised to influence pricing models and may prompt further shifts away from the traditional 'rate-per-hour' approach," it added.
The survey also highlighted that there is "a discernible and growing apprehension about price erosion" despite earlier optimism about generative AI. PwC added that "clients increasingly expect efficiency gains to translate into reduced costs and exert downward pressure on fees."
It also highlighted concerns among half of the firms ranked between 11 and 25 that clients might begin to use similar tech themselves, potentially reclaiming work that would otherwise be outsourced.
The survey shows that the top 50 law firms are enjoying clear benefits from adopting AI. Half of the top 10 firms and 56% of those ranked between 11 and 50 reported gains in productivity or both productivity and financial returns. But none of the firms ranked 51–100 has yet to monetize AI, though 19% say that there have been improvements in efficiency.
Firms also increasingly believe AI will deliver major savings in chargeable hours. The expected average hour reduction rose from 11% in 2024 to 16% in 2025 across the top 100 firms, with more than half estimating that between 11% and 20% of billable time could be automated.
These shifting expectations are prompting firms to rethink pricing, especially in tech-heavy practice areas where fixed fees may replace hourly billing, according to PwC.
"Equipping partners with the skills to negotiate fees effectively will be critical," the report warns. "Without comprehensive education and engagement of partners, there is a real risk that pricing decisions could undermine both the performance and profitability of law firms."
Profit per equity partner at the top 10 firms rose by 5.4% to an average of £1.8 million, followed by a 4.1% increase to £1.04 million among firms ranked 11 to 25, and around £600,000 for those in the rest of the top 100.
This largely reflects that roughly two-thirds of firms in the top three groups achieved profit growth that outpaced fee income growth. In contrast, only 22% of firms in the 26 to 50 bracket managed to do so, suggesting they faced greater challenges.
The survey also found that the top 10 firms achieved a net profit margin of 41.8%.
Top 10 firms saw chargeable hours drop across most grades, reversing the modest gains of a year prior. The steepest declines came from senior grades, with full equity partners down 2.4%, fixed share partners down 8.6% and lawyers with more than nine years' post-qualification experience down 8.3%.
Chargeable hours remained relatively stable across all grades across the rest of the top 100 firms, with the biggest shift being a 3.5% drop among full equity partners in top 11 to 25 bracket.
--Editing by Joe Millis.
For a reprint of this article, please contact reprints@law360.com.
