How law firms can stay profitable amid rising expenses and client pushback

Speaking with Lawyers Weekly, David Newman, the CEO of Maddocks; Alissa Anderson, the COO of MinterEllison; and Catherine Roberts, the senior director of AI and legal tech at Thomson Reuters, outlined the key strategies firms should adopt to remain financially resilient in today’s challenging environment.

How to maintain profitability

With the burden of rising operational costs mounting, maintaining profitability has become an increasingly complex challenge for law firms.

According to Newman, a fundamental shift in how law firms position their services to clients is essential.

Rather than focusing solely on price, he argued, firms must highlight the broader value they provide, as clients are rarely motivated by cost alone.

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“Clients ultimately want to achieve an outcome and will look to the value a lawyer brings to their role. While price might be important, often other factors like efficiency, sector expertise, ease of doing business, or style will be equally, if not more, important to a client’s purchasing decision,” he said.

This value-first approach is echoed by Anderson, who underscored the importance of cultivating “deeper client relationships”, particularly as the legal industry shifts towards more outcome-driven engagement.

“This means optimising how we work, delivering clear value to clients, and showcasing our industry-led expertise in legal and consulting to deliver strategic outcomes that are valued by our clients,” she said.

In a landscape where technological advancements are rapidly transforming industries, artificial intelligence and emerging technologies are increasingly viewed as vital tools for driving operational efficiency and delivering more cost-effective legal solutions.

Roberts explained that law firms leveraging AI to develop new service offerings, rather than solely for automating administrative tasks, are discovering fresh ways to deliver greater value to clients at scale.

“Today, the law firms that are embracing AI beyond just automating administrative tasks are finding new ways to deliver value to their clients at scale. The most effective [is] using AI to simultaneously boost internal efficiency and unlock brand-new service offerings,” she said.

“It is this focus on using professional-grade AI to directly benefit client outcomes that is enabling leading law firms to differentiate on value rather than price alone.”

Anderson also added: “We believe that firms that combine top-tier excellence with AI as a core enabler will be best placed to optimise workflows and productivity and elevate client delivery".

“We’ve taken a leading-edge position in this space, with an AI strategy that is embedded across legal, consulting and business operations. This allows us to deliver better outcomes for clients, while our people can focus on the very human relationship we have with our clients, more high-value, strategic work as well as develop their careers with us," she said.

Additionally, Newman advised that to maintain profitability without sacrificing quality, firms must “invest in, reward, and keep their best people”, while also “growing strategically” in new markets or practice areas.

Overcoming client pricing pushback

As clients increasingly seek cost-effective legal solutions, law firms are under growing pressure to justify their fees amid rising operational costs and evolving client expectations.

Newman explained that many of the management costs law firms now face are unavoidable, primarily driven by investments in technology and regulatory compliance.

“Many of the rising management costs law firms are facing are unavoidable. All firms are facing increasing costs associated with technology – such as AI, together with other emerging technologies and cyber security. Many of these costs are driven by our clients’ reasonable expectations around efficiencies and security,” he said.

In addition to these technological demands, Newman noted that law firms are also bracing for “significantly increased AML compliance costs”, which come in addition to “other inflationary pressures that all businesses are facing”.

In such a challenging landscape, he emphasised the importance of “building strong, collaborative relationships with clients” to support more effective pricing discussions.

He emphasised that these relationships improve when you “take the time” to truly understand your clients, “demonstrate deep legal and sector expertise”, and have the “agility and flexibility to price for a client or a matter”.

Why firms must adapt or risk falling behind

Law firms that fail to address rising operational costs and growing client expectations risk severe consequences, from losing top talent to falling behind in innovation and long-term growth.

Anderson warned that firms unwilling to adapt to these mounting pressures “risk losing ground”.

“As disruption accelerates, driven by geopolitical forces, AI, commoditisation of services, and shifting client demands, all firms must evolve. Australia is among the most competitive legal markets in the world, and competition drives innovation. That means listening to our clients, investing in people, innovation and capability diversification,” she said.

“This is especially true in dynamic and highly regulated areas such as AI governance, privacy and decarbonisation, where boards and clients are demanding deep expertise and a trusted partner to help navigate both opportunities and challenges.”

Echoing this view, Newman emphasised the need for law firms to act decisively to stay competitive in a rapidly changing environment.

He expressed that if firms fail to effectively navigate these pressures, they risk “losing top talent”, “falling behind in innovation”, and “missing growth opportunities”.