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We look at the trends set to define the year ahead for small firms, including alternative fee arrangements, the need to drive growth through new business organically, attracting and retaining talent, and more.

The legal services sector is both competitive and complex. It's evolving at a rapid pace, with the cost-of-living crisis, increasing demands post Covid-19, and the proliferation of legal tech tools being just a few factors at play. 

But as 2023 draws to a close, small firms have shown themselves to be incredibly robust and ambitious as they look to grow through organic means. And there is a growing awareness of the need to invest in the right working practices and systems to increase internal productivity and deliver more value to clients.

Here, we explore the five trends that will define the next year, and how small firms will rise to the challenge.

Leading the way in alternative fee arrangements 

With only 8% of respondents to our Bellwether survey charging exclusively by the hour, small firms are the pioneers of flexible billing. Over the last decade, it's become the norm for smaller firms to serve a mix of fixed, flat and retainer fees alongside hourly billing.

With the cost-of-living crisis showing no signs of easing, alternative fee arrangements are here to stay. 92% of small firms have already embraced this, and many who haven't will soon be considering this model. 

Protect your profit margins: hone your pricing strategy with care

With funding squeezed for smaller firms over the last decade, it's "no surprise that more creative funding solutions have come to the fore, with 'pay as you go' or 'unbundled' services more commonplace," says Geraldine Morris, who heads up the Family Law news desk at ½Û×ÓÊÓƵ.

But, while pricing has the potential to positively impact profitability, it's important to exercise caution when embracing alternative legal fees. Being too flexible when it comes to billing can be detrimental. Developing a pricing model that doesn't hurt your profit margins is key. 

And there is no 'one size fits all' method for moving away from the billable hour successfully. According to Sally Azarmi, Founder of Azarmi & Co., the key is to build a tailored pricing plan, and use different fee arrangements for different practice areas to your advantage. For example, flat fees may not be the best option for litigation, or unpredictable contentious work, but can work well for practice areas where cases are relatively short. In 2024, it will be important to keep a flexible outlook as your create, review and assess a strategy that suits your firm. 

Happier clients and a healthier workforce

The drivers behind why so many small firms have moved towards flexible billing are not just linked to profit.

According to our report, Calling time on the billable hour, 85% of firms are embracing alternative fees based their decision on client demand. Clients are increasingly pushing for value based billing that's more transparent than traditional hourly billing.

With billable hour targets ranging from 800 to 2,000+ hours per year, the overall average lawyer ranked stress levels as a 6 out of 10 in 2022. It's no surprise that more than two-thirds of UK lawyers have recently suffered from some form of . Because the impact of non-billable work disproportionately falls on lawyers from underrepresented backgrounds, shifting to alternative fees could help support greater diversity in the profession, as well as helping to avoid stress and burnout.

Attracting new business: a high priority

Our Bellwether report shows that 46% of respondents expect the performance of their firms to grow over the next 12 months. And 90% of that number plan to invest more time and money into business development strategies. This is testament to how robust and ambitious the legal services market is, given the current economic climate and slow growth predicted in the ½Û×ÓÊÓƵ GLP Index 2024.

As only 16% of firms stated that expanding their number of practice areas would be key to growth, small firms will need to attract new business by defining a unique selling point (USP) that resonates with potential clients more than ever. If they aren't already, they should make the most of social media channels, such as LinkedIn, to develop a strong profile. Why not contribute to the Law Society pages for the Small Firms Network? These are the perfect platforms to publish useful , and then direct potential clients towards. Many respondents also noted that embracing a PR strategy centered around providing informative, engaging content was highly successful.

So, in 2024, many small firms will be thinking in terms of their brand. That means equipping themselves with a user-friendly website and maximising SEO to become as visible as possible.

Driving growth organically

Unlike previous years, the desire for firms to expand by merging with, or acquiring another firm has dipped. The bigger focus is on organic growth.

Bucking recent trends, this year's Bellwether survey respondents were clear in their need for low-cost, or no-cost solutions. But, growing a law firm has never been easy, and given the current economic downturn, this new requirement could pose an additional challenge.

Thankfully, there are numerous cost-effective tactics for small firms to apply. Here are our top recommendations:

Network: online and face-to-face

Rita Gupta, Managing Director and Solicitor at LGFL Ltd, emphasises how important it is to "be everywhere, and be helpful." Online events are the most cost-effective way to meet potential clients, and tell them about your services. This should be balanced with seminars, talks and PR events in-person.

Ask for referrals

As a small firm, your client network is your strongest asset when it comes to winning new business. If you've put in the time and effort to develop a high-touch client experience, this can pay off. Client referrals built on trust can lead to some of the strongest new business relationships. Discover more on tactics unique to small firms.

Don't forget your existing clients

Cost-effective growth doesn't just come from new business. In fact, 79% of small firms said retaining clients will be a challenge in the next 12 months. Rosaline Connor, Managing Partner at Arc Pensions Law, says, "One of the wisest things I was told as a young lawyer was not to get so focused on getting new clients that you forget about the actual clients who are loyally with you right now."

Attracting and retaining talent

When it comes to happiness at work, since Covid-19, the conversation is no longer purely about higher salaries. Our Bellwether report reveals that learning and development opportunities, and a positive workplace culture are just as valuable. Attracting and retaining the most talented lawyers in 2024 means tackling this head-on.

"Embrace the diversity of your people, and when they raise concerns, listen to them and act on them. Be open and transparent about how people get promoted or work assigned," says Elizabeth Rimmer, Chief Executive Officer at LawCare. "For those responsible for others, ensure they're given the time and skill development support they need to manage others well."

Small firms can employ a range of tactics to put this into practice. Ensuring you actively recruit your candidates from a wide range of backgrounds and experiences is key. It might also be about introducing a supportive mentorship programme, offering diversity and inclusion training, or implementing policies and practices that promote equity and fairness for all employees.

Earlier, we also touched on how moving towards alternative billing methods can improve mental wellbeing and increase productivity. The pressure to hit big number-based targets, without any true qualitative evaluation and feedback is one of the biggest causes of stress for lawyers. Performance measures based on client satisfaction, trust level and repeat business could be far more appealing.

Embracing technology and AI

In the past year, there's been no shortage of debate and speculation on how both legal tech and AI could disrupt the sector.

In terms of using free generative AI tools such as ChatGPT for legal sources, small law firms and solo practitioners in the UK are still on the fence. 25% of our Bellwether survey respondents said they wouldn't consider using open AI sources instead of paid. And the biggest group, at 51%, were those who were still unsure on their stance. It's clear that a generative AI solution is needed to help smaller firms search, summarise, and draft documents from trusted, authorative sources instead of the open web. But 2024 will not be about bold AI decisions.

On the other hand, legal tech is already significantly more embedded in the way small firms operate, with 71% of lawyers already using a platform to manage cases and client information. And, for 2024, 81% of small firm lawyers said that keeping working practices and systems up-to-date will be a significant challenge.

In 2024, small firms should be bold, and embrace automation to stay competitive. This is far simpler than often perceived and can be managed in-house, or by partnering with a law tech provider. These can be small scale changes, usually involving billing and payments, broad data entry, or document automation. In short, it's a way of shifting tedious tasks from humans to machines, so you can focus more on valuable, client facing work.