Key Points
- Four in five, or 79%, of SME law firms surveyed by Crowe have committed specific funding to artificial intelligence (AI) initiatives.
- The findings come from Crowe’s 2026 Law Firm Benchmarking Survey, produced in collaboration with the Institute of Legal Finance & Management (ILFM).
- The survey covered 39 firms with turnovers ranging from £1.7 million to £69 million.
- Revenue growth remained between 11% and 12% across both City and regional law firms.
- Half of the firms surveyed exceeded their original financial expectations for the year.
- Crowe found that profitability, margin improvement, cash generation and operational efficiency are becoming more important strategic priorities than turnover growth alone.
- Some 51% of firms identified profitability and margin improvement as a key strategic priority.
- Profit pools increased by 12% in City firms and 6% in regional firms, although profit per partner remained under pressure outside London.
- Rising people costs were identified as the most significant pressure on margins.
- Some 88% of firms were considering pay rises of no more than 5%, highlighting pressure to balance staff remuneration with partner returns.
- City firms saw lock-up increase from 135 to 153 days, while regional firms improved from 140 to 132 days.
- Crowe said AI investment is increasingly being considered in terms of implementation, efficiency, service delivery and knowledge management rather than whether firms should adopt the technology at all.
- Nicky Owen, Crowe’s head of professional practices, said firms that convert growth into profit, cash and sustainable partner returns are increasingly important in the current environment.
Why are SME law firms putting more emphasis on profitability?
Small and medium-sized law firms are increasingly looking beyond headline turnover growth as they seek to convert rising revenues into stronger profitability, cash generation and sustainable partner returns. The shift has emerged from Crowe’s 2026 Law Firm Benchmarking Survey, which found continued revenue growth across both City and regional firms while also highlighting pressure from people costs, partner returns and working-capital management.
Legal Futures reported on 16 September 2026 that four in five SME law firms had committed specific funds to AI-based solutions, while the sector was placing greater emphasis on profitability rather than simply expanding turnover. The report was written by Neil Rose, who attributed the findings to the annual survey conducted by Crowe in association with the Institute of Legal Finance & Management (ILFM).
Crowe’s research covered 39 law firms with turnovers ranging from £1.7 million to £69 million. According to the findings reported by Neil Rose in Legal Futures, revenue growth remained robust at between 11% and 12% across both City and regional practices, with many firms reporting results ahead of budget.
The survey therefore presents a picture of a legal sector that has continued to expand despite an uncertain economic environment, but where the quality of that growth is receiving increasing attention.
What did Crowe’s 2026 Law Firm Benchmarking Survey find?
Crowe’s findings indicate that revenue growth remained relatively strong across the firms surveyed. Legal Futures reported that half of the firms exceeded their original financial expectations for the year.
Crowe was quoted by Neil Rose as saying that this demonstrated continued resilience and adaptability within the profession. The firm also attributed the performance to several factors, including pricing discipline, healthy levels of activity and continued investment in important practice areas.
Crowe said:
“Many firms continue to benefit from strong pricing discipline, healthy activity levels and continued investment in key practice areas.”
The accounting and advisory firm added that the consistency of growth rates between City and regional firms was noteworthy because the two groups operate in different markets.
Crowe said firms had generally adapted to changing client requirements and market conditions, helping maintain top-line growth.
The findings are consistent with Crowe’s wider Law Firm Benchmarking work, which is designed to examine the financial health, resilience and strategic priorities of UK law firms. Crowe says its benchmarking work is undertaken in collaboration with the ILFM and is intended to provide firms with insight into their performance against participating peers.
Why is turnover no longer the only measure of growth?
The survey indicates that law firms are increasingly concerned with what happens to revenue after it is generated.
According to Legal Futures, 51% of firms identified profitability and margin improvement as a key strategic priority. The findings suggest that firms are paying greater attention to whether additional revenue ultimately produces stronger profits, cash flow and returns for partners.
This distinction is significant for professional-services businesses. Revenue can increase while costs rise at the same time, limiting the financial benefit of additional turnover. For law firms, staff costs, senior hiring, technology investment and working-capital requirements can all influence how much of that growth is ultimately converted into profit.
Crowe’s findings therefore point towards a greater emphasis on the efficiency and financial quality of growth.
Nicky Owen, head of professional practices at Crowe, said the firms pulling ahead were not necessarily those with the fastest growth rates. Instead, she highlighted the importance of converting growth into profit, cash and sustainable returns for partners while continuing to invest in people and technology.
Crowe’s current professional-practices work is led by Nicky Owen, who specialises in professional-service firms and advises partnerships and LLPs on areas including cash-flow analysis, growth, restructuring and strategic planning.
How much are SME law firms investing in artificial intelligence?
One of the clearest findings from the survey concerns AI.
Some 79% of firms have committed dedicated funding to AI initiatives, according to the findings reported by Legal Futures. That means almost eight in every ten firms participating in the research have moved beyond simply discussing AI and have allocated financial resources towards AI-related solutions.
Crowe described this as a significant change in approach.
As reported by Neil Rose of Legal Futures, Crowe said the question for many firms was increasingly shifting away from whether they should invest in AI and towards how the technology should be implemented.
The areas being explored include improving efficiency, enhancing service delivery and supporting knowledge management.
Crowe said:
“For many firms, the question is no longer whether they should invest in AI, but how best to implement it.”
The firm also said that, although adoption rates vary, AI had become a strategic priority across much of the legal profession.
The finding places technology investment alongside profitability as two connected issues for law firms. Firms are not only considering the cost of acquiring AI tools but also how those tools can contribute to operational efficiency and service delivery.
What pressures are law firms facing on profitability?
Despite the positive revenue figures, the survey identified significant pressure on margins.
Rising people costs were the most significant pressure on profitability, according to the findings reported by Legal Futures. More than half of the firms surveyed also identified profitability improvement as a strategic priority.
Pay is one part of that challenge.
Crowe found that 88% of firms were considering pay rises of no more than 5%. The finding illustrates the balancing act facing firms as they attempt to retain and reward employees while also protecting profitability and partner returns.
The issue is particularly relevant in a professional-services environment where people are a major component of operating costs. Higher salaries can support recruitment and retention, but they can also place additional pressure on margins when firms are simultaneously investing in technology and other areas of the business.
How did City and regional firms perform differently?
The survey found differences between City and regional practices even though both groups recorded revenue growth in the 11% to 12% range.
According to Legal Futures, profit pools grew by 12% in City firms and by 6% in regional firms. However, the growth in overall profits did not necessarily translate into equivalent increases in profit per partner, particularly among regional firms.
Crowe explained that headline profit growth does not automatically produce improved returns for individual partners. One reason is that firms may expand their partner numbers and invest in senior talent, which can dilute the effect of overall profit growth when measured on a per-partner basis.
Crowe said regional firms appeared to face greater pressure in this area, with profits increasing while profit-per-partner growth proved more difficult to achieve.
The distinction highlights why firms are examining several financial measures rather than relying on revenue or aggregate profit alone.
What happened to law firms’ lock-up periods?
Working-capital management was another important part of the survey.
Legal Futures reported that City firms saw lock-up rise sharply from 135 days to 153 days, while regional firms improved from 140 days to 132 days.
Lock-up measures the period between work being carried out and the firm ultimately receiving payment. A longer period can tie up cash and place additional pressure on working capital.
The different performances between City and regional firms therefore provide another example of why revenue growth does not provide the complete picture of financial performance.
Crowe said the regional improvement suggested that some firms had successfully focused on billing discipline, collections and working-capital management.
The firm also said that, given the prevailing economic environment, firms capable of improving cash conversion without affecting client service could gain an advantage.
What did Nicky Owen say about the findings?
Nicky Owen described the sector as demonstrating “impressive resilience”, according to the Legal Futures report.
As reported by Neil Rose of Legal Futures, Owen said strong revenue growth had continued across both City and regional firms despite economic uncertainty. However, she said the latest findings indicated that growth alone was no longer the main differentiator.
Owen’s assessment focused on the ability of firms to turn growth into profit, cash and sustainable partner returns, while continuing to invest in employees, technology and their longer-term development.
She also highlighted regional firms, saying they had achieved comparable growth while making meaningful improvements in lock-up. According to Owen, this demonstrated that strong financial performance was not limited to the largest firms.
Crowe’s published information confirms Owen’s role as its Partner and Head of Professional Practices in London, with her work covering professional-service firms and partnerships.
What does the survey indicate about AI and operational efficiency?
The AI findings sit within a broader change in how law firms are approaching investment.
Rather than treating technology investment as a separate issue from financial performance, the survey indicates that firms are increasingly considering how AI can contribute to efficiency, client service and knowledge management.
The 79% funding figure does not, by itself, establish how much each firm is spending or what financial return each investment will produce. It does, however, show that dedicated AI funding has become widespread among the firms included in the survey.
Crowe’s broader 2026 guidance also stresses the importance of evidence of value and appropriate governance when organisations invest in AI and transformation. Its guidance says businesses need to consider investment carefully and maintain governance safeguards as AI develops.
For law firms, the challenge is therefore not simply adopting technology. It also involves determining where technology can improve processes while maintaining appropriate oversight and service standards.
This makes Artificial Intelligence (AI) and Management increasingly relevant areas of professional development for organisations examining how technology investment can be incorporated into operational planning, while Accounting, Finance and Budgeting is directly connected to the financial discipline required to assess costs, margins and cash generation.
What could the findings mean for SME law firms?
The 2026 survey presents a legal sector that is still recording strong revenue growth, but where financial priorities are becoming more nuanced.
The firms surveyed by Crowe have reported growth despite economic uncertainty, while many have exceeded expectations. At the same time, rising people costs, pressure on partner returns and working-capital considerations are encouraging firms to look beyond turnover.
AI is another major part of this transition. With 79% of participating firms committing dedicated funds to AI initiatives, technology has moved further into strategic planning for many practices.
The survey does not suggest that every AI investment will automatically improve profitability. Instead, the findings reported by Legal Futures point to a wider question of implementation: how firms can use technology to improve efficiency, service delivery and knowledge management while maintaining financial discipline.
The findings also demonstrate differences between City and regional practices. Both recorded revenue growth of 11% to 12%, while City firms recorded stronger growth in profit pools and regional firms improved their lock-up performance.
For SME law firms, the combination of revenue growth, cost control, cash conversion, technology investment and partner returns is therefore becoming increasingly important in assessing overall financial performance.
The wider professional-services environment is also placing greater emphasis on financial benchmarking. Crowe’s 2026 benchmarking programme was designed to provide insight into the financial health of law firms and the challenges facing their leaders, with the survey open to firms with a minimum revenue of £1 million.
As firms continue to invest in AI while managing people costs and working capital, Management and Leadership, Artificial Intelligence (AI) and Accounting Finance and Budgeting provide relevant areas for organisations examining the management, technology and financial issues highlighted by the survey.