When partners toasted their 2025 bonuses, many did so on shaky ground.
The latest State of the U.S. Legal Market report — produced by the Thomson Reuters Institute with Georgetown Law’s Center on Ethics and the Legal Profession — paints a picture of an industry enjoying exceptional results: average profit growth around 13%, worked rates climbing roughly 7.3%, and some Am Law firms reporting profit-per-lawyer gains that dwarf anything in recent memory. Yet the same forces that have supercharged revenue are also carving fault lines that could snap under pressure.
Demand surged last year — the strongest growth since the Global Financial Crisis in some corners of the market — but it wasn’t evenly distributed. Corporate clients shifted work away from the priciest firms toward lower-cost alternatives, and midsize shops captured a big slice of new demand. Meanwhile, expenses ballooned: firms boosted technology spending (nearly double-digit increases in some datasets), hiked compensation, and grew headcount. All at a moment when 90% of legal dollars still flow through hourly billing.
A seemingly absurd tension
Here’s the odd arithmetic: firms are pouring money into AI and other tech to get work done faster, yet they're still mostly paid by the hour. That dynamic creates what the report calls an “almost absurd tension.” Clients see efficiency gains and expect pricing innovation; firms still measure revenue in time units. The result: rates climb while the amount clients spend per hour actually fell in 2025, suggesting that rate hikes are pushing work downstream or into alternative providers.
Firms are not ignoring AI. Technology budgets rose meaningfully, and many firms trumpet new platforms and automation pilots. But there’s a difference between buying tools and redesigning workflows around them. Some commentators argue that most AI deployments today act as scaffolding for traditional models — speeding tasks but leaving the basic economic bargain intact. For a glimpse of how enterprise AI is changing everyday workflows, consider how consumer and workplace tools are evolving: features such as Google's AI Mode and search-style AI assistants that index personal data like Gemini Deep Research are starting to reshape expectations about what software should do for users. If corporate legal teams adopt comparable, attorney-facing capabilities, the leverage clients wield over external counsel could grow quickly.
Why clients might tighten the purse strings
General counsels are signaling rising caution. Surveys in the report show Net Spend Anticipation falling to levels not seen since the pandemic, and many GCs say they expect to pare outside counsel budgets. The in-house ranks also remain a structural threat to firm models: after prior downturns, corporations absorbed laid-off BigLaw talent and used that insider knowledge — and later, their own legal teams — to demand more precise scopes and tighter pricing. This time around, in-house teams are adding AI tools as well, creating the potential for a much more concerted push to move work internally or to cheaper external providers.
History matters here. The market’s current exuberance mirrors conditions that preceded earlier corrections in 2007 and 2021: high demand driven by dislocation, rapid expense growth, and confident forecasts. When the tide turns, the shocks tend to cascade.
Choices for firms that want to avoid last year’s summit-and-plummet story
Some firms will ride out a slowdown with leaner operations and strong client relationships. Others will need to change how they price and deliver services. Three practical moves stand out:
- Start pricing experiments now: creative alternatives — fixed fees, value-based arrangements, subscription models tied to outcomes — are easier to trial in current hot practices than many partners imagine.
- Measure tech returns by client value, not vendor buzz: investments should reduce client cost or risk, not just shave internal hours.
- Invest in client-facing transparency: clearer scoping, proactive budgets, and collaborative efficiency programs reduce invoice fights and build trust.
These aren’t quick fixes. But the report shows firms that use today’s surplus to modernize their economics and client engagement will be better positioned in a contraction.
If you’re skeptical that AI could cut into firm economics, remember that technology often empowers the buyer first. Tools that let GCs analyze invoices, reassign routine tasks to in-house lawyers, or automate review at scale will change how dollars flow — and former firm associates now on corporate payrolls will know exactly how to press for change.
For lawyers personally, the scramble for the right tools matters too. Many practice teams are equipping themselves with fast laptops and cloud workflows; if you’re upgrading gear, a reliable MacBook remains a popular choice for lawyers who need a blend of portability and performance.
Profits running hot in 2025 don’t guarantee smooth sailing. The industry’s peak earnings were purchased with rising costs, shifting demand patterns, and a pricing model built on time. Those ingredients can sustain prosperity for a while — but they also set up a rapid unwind if clients change course or macro conditions cool. For now, law firms have an unusual opportunity: translate the current boom into durable client value, or treat this as another summit and prepare to rebuild from the valley below.