SME law firms are shifting focus from top-line growth to profitability, according to a new survey that also shows a major increase in AI investment.
Revenue growth stays solid
The annual survey, conducted by accountants Crowe with the Institute of Legal Finance & Management, covered 39 firms whose turnovers range from £1.7 million to £69 million. Both City and regional practices reported revenue growth remained robust at 11-12%, with many firms beating their budgeted targets.
Half of the respondents said they exceeded original financial expectations for the year, a sign that the sector remains resilient despite broader economic uncertainty.
Profitability and cash flow become priorities
More than half of the firms—51%—identified profit margin improvement as a strategic priority, moving attention away from pure revenue growth. Profit pools grew by 12% in the City and 6% in regional markets, yet profit per partner faced pressure outside the capital.
Expanding partner numbers and hiring senior talent have diluted the impact of overall profit growth on individual partner earnings, especially among regional firms where profit per partner growth proved harder to achieve.
Rising personnel costs emerged as the biggest margin challenge, prompting 88% of firms to consider pay rises of no more than 5 % to balance talent retention with partner returns.
City firms saw lock-up rise sharply from 135 to 153 days, while regional firms improved from 140 to 132 days. The findings suggest that many regional firms have successfully focused on billing discipline, collections and working-capital management.
AI spending accelerates
According to the survey, 79% of the firms have earmarked specific funds for AI-based solutions, marking a notable shift in strategic planning. The focus has moved from questioning whether to adopt AI to determining the most effective implementation pathways.
Firms report exploring AI to boost efficiency, improve service delivery, and support knowledge management. Although adoption rates vary, AI is now considered a strategic priority across the profession.
Nicky Owen, head of professional practices at Crowe, said the sector shows “impressive resilience” and that the firms pulling ahead are those turning growth into profit, cash and sustainable partner returns while continuing to invest in their people, technology and long-term future.