Digging into legal spending data, legal clients appear to be bewildering optimism in the current dark economic climate.
As the economy remains volatile and a recession remains a possibility, law firms need to understand how a potential recession will impact clients’ budgets to ensure business continuity. It may be wise to try to understand the
A Market Insights survey of legitimate customers from Thomson Reuters helps clarify these key budgetary issues. For example, spending optimism (the net difference between clients who say their legal spending will increase versus those who say it will decrease) has risen since the pandemic began in Q2 2020. At the time, more clients were planning a decline. Rather than increase legal spending, many did not fully grasp the impact of the pandemic on business operations.
Since then, however, optimism about spending has grown steadily. In his second quarter of 2021, just a year after the pandemic began, legal cost optimism hit its strongest period of projected growth in quite some time. Optimism on spending then continued throughout the most recent quarter.
On the surface, optimism for total legal costs remained strong throughout the first half of 2022. Twice as many clients (44%) expect their legal costs to increase rather than decrease in Q2 2022 (17%). And that optimism rate is the highest since the second quarter of 2021, and his second highest pre-pandemic since mid-2019.
However, this trend is not consistent across all buyer segments. Large and medium-sized businesses alike are beginning to curb their legal spending in the face of economic uncertainty. In fact, this relaxed expectation of legal fees often indicates a shift in buyer sentiment.
Sector segments also reveal meaningful differences. Spending optimism is spread relatively evenly across all industries, although companies in the technology, media and telecoms (TMT) sector show lower optimism in the first half of the year. Nearly 30% of TMT firms expect to increase legal spending, while 25% expect it to decrease, resulting in the narrowest gap between business sector segments. It is One possible reason is that TMT companies may have invested heavily in the early days of the pandemic and are now beginning to scale back compared to before.
The data as a whole shows continued optimism, but there are hints that may point to a shift across the segment. Historically, there has been some delay between the onset of a true recession and the impact on corporate legal costs. This means that client budgets are not yet feeling the full pressure of less spending optimism.
Another explanation is provided by the history of the 2008 financial crisis, which many internal legal leaders experienced first-hand. According to this account, when budgets were cut, it was difficult for department leaders to get their budgets back to pre-crisis levels, so many leaders are now asking what they can do to maintain their budgets in the coming months. You may be willing to do as much as you can. .
Still, for the time being, law firms can use these optimistic numbers in client spending projections to develop their own operational plans and best place resources.
This data can also provide attorneys with information about which clients may be eligible for additional outreach based on demographics and needs. Sure, it’s helpful to reach out to clients who anticipate spending increases and get a sense of some of that work, but setting up conversations with clients who don’t really expect spending increases or decreases is equally important. Clients facing these challenges may require assistance in prioritizing their legal work and developing work plans that ensure efficiency and cost effectiveness.
Law firms with such propositions, a clear understanding of their market position, and the ability to reach out to clients at all levels can become valuable partners to corporate legal leaders and their legal teams. increase.
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