2026: The Year of a K-Shaped Legal Market in Australia?

As 2026 kicks off, the legal market in Australia stands at a pivotal inflection point. As the data increasingly makes clear, the market is no longer moving forward as a single, coherent whole. Instead, we are fragmenting. Certain law firms - and lawyers - are seeing high demand, premium pricing and continued growth. Others are grappling with shrinking margins, relentless fee pressure and a growing sense of strategic uncertainty.

Begs the question: “Are we entering the era of a K-shaped legal market in Australia?”

What is a K-shaped legal market?

Borrowed from economics, the term “K-shaped” describes a situation where different segments of an economy move in opposite directions at the same time. One arm of the “K” points upward: reflecting growth, opportunity and resilience. The other slopes downward, representing stagnation or decline.

At the end of 2025, data suggested that this same pattern was starting to emerge with increasing clarity in the Australian legal services market.

Understanding the K-Shaped Market

Traditionally, periods of economic recovery or growth lift most participants in a market (you may know this by the term: a rising tide lifts all boats). As can be expected, some will benefit more than others, but the overall direction is broadly positive. 

The K-shaped model breaks away from that assumption. It recognises that modern markets often reward “some” participants, while simultaneously penalising others.

The result is not a gentle spread of outcomes, but a sharp divergence.

Why the Australian Legal Market Is Especially Prone to K-Shaped Outcomes

Why is the Australian legal market currently particularly susceptible to K-shaped dynamics at this time?

Unlike capital-intensive industries, where scale and infrastructure are the primary differentiators, law is built on reputation, trust and perceived value. As you would imagine, these attributes compound quickly. Once a lawyer or firm is seen as “the go-to” adviser in a particular area, demand accelerates disproportionately. Conversely, those without clear differentiation can find themselves competing solely on price.

Recent market data indicate that a relatively small number of Australian law firms now capture a disproportionately large share of total sector revenue, with top-tier firms continuing to outpace the broader market. This concentration effect is a hallmark of a K-shaped market, where structural advantage compounds quickly for those already positioned on the upward arm.

Several structural characteristics will amplify this effect:

• Low switching costs for commoditised work: Clients will readily move routine work to cheaper providers if the value is unclear.
• High switching costs for trusted advisers: Once trust is established, clients are reluctant to change, even at higher prices.
• Technology as a force multiplier: Automation and AI disproportionately benefit those who already operate efficiently and strategically.
• Procurement influence: Increasing procurement involvement formalises price pressure for undifferentiated services.

In a market where over 30 firms are earning in excess of A$50M and an ever-increasing number of legal process outsourcers and firms backed by private equity are meeting lower-cost needs, we will inevitably start to see increasingly large outcome gaps between firms in the short term.

The Upward Arm of the K: Who Is Pulling Ahead?

Lawyers and firms on the upward arm of the K-shaped market share several defining characteristics:

First, they are deliberately positioned. Rather than presenting themselves as broad generalists, they articulate a clear focus — whether by industry, problem type or client profile. This focus makes their value easier to understand and harder to substitute.

Second, they have developed pricing confidence. This does not necessarily mean charging more across the board, but it does mean charging appropriately for risk, complexity and outcomes. These firms are more likely to use fixed fees, retainers or subscription models that align with client expectations for certainty while protecting margins.

Third, they invest in client relationships and visibility. They communicate regularly, share insights and build trust outside of live matters. This positions them as advisers, not just service providers.

Finally, they’re strategic adopters of technology. Rather than fearing automation, they use it to remove low-value work, improve turnaround times and free senior lawyers to focus on judgment-heavy, high-impact tasks.

The cumulative effect is pricing power. These firms are not immune to market pressure, but they are better equipped to absorb it.

The Downward Arm of the K: Who Is Under Pressure?

On the downward arm of the K-frame are firms with common characteristics that include:

• Broad, undifferentiated positioning: “Full-service” offerings without a compelling narrative for why a client should choose them.
• Heavy reliance on hourly billing: Particularly in price-sensitive or procurement-led environments.
• Reactive business development: Dependence on referrals or legacy relationships without active market engagement.
• Exposure to commoditisation: A large proportion of work that clients perceive as routine or interchangeable.

These firms often feel the squeeze indirectly. Discount requests become more frequent. Write-offs and write-downs quietly increase. Fee negotiations take longer and become more adversarial. Utilisation targets rise, but profitability does not.

Over time, this creates a cycle of margin erosion and fatigue.

The Disappearing Middle

One of the most striking features of a K-shaped market is the erosion of the middle market.

In Australian legal services, the traditional “solid mid-tier” position is becoming harder to sustain without a clear strategy. 

Firms that attempt to sit between premium and volume providers often find themselves competing with both and winning against neither.

To be clear, this does not mean all mid-tier firms are doomed. What this means is that strategic clarity is no longer optional.

The Role of Clients and Procurement

Client behaviour is a critical driver of the K-shaped legal market.

In-house teams are under increasing pressure to demonstrate value, manage budgets and align legal spend with broader organisational goals. Procurement functions, once peripheral to legal services, are now central players in panel appointments and pricing discussions.

This has two important consequences.

First, it formalises price pressure for commoditised work. Rates are benchmarked, discounts are expected, and deviations require justification. If you doubt this, look at a recent financial services tender!

Second, it rewards clarity. Lawyers who can clearly articulate outcomes, risk mitigation and commercial impact are better able to engage constructively with both legal and procurement stakeholders.

Technology: Divider, Not Equaliser

Technology is often framed as a leveller, but in practice, it tends to amplify existing advantages.

Firms with strong processes, data discipline and strategic intent use technology to scale their strengths. They deliver work faster, more consistently and with greater transparency. This reinforces client trust and justifies pricing.

Firms without these foundations may adopt the same tools, but struggle to realise the benefits. In some cases, technology simply exposes inefficiencies or undermines traditional billing models without replacing them.

In a K-shaped legal market, technology is less about access and more about execution.

The Effect Lateral Hiring is having on the K-Shaped Market

The K-shaped divide in the legal market is being accelerated — not softened — by a frenzied lateral hiring market.

What was once a tool for targeted capability building has increasingly become a mechanism for acquiring client revenue. In short, lateral recruitment is no longer primarily about adding capacity; it’s now all about buying revenue, relationships and market position.

High-performing lawyers with portable practices, strong client followings or visible market profiles are now in more demand than ever! 

By contrast, lawyers without a clear client proposition or transferable book are finding that lateral mobility works against them. As firms prioritise immediate commercial impact, internal development pathways narrow. Loyalty and tenure matter less than revenue defensibility and short-term contribution.

This has several structural consequences for the firm and the market overall:

• First, talent concentration intensifies. Strong firms become stronger by attracting already-successful laterals, while struggling firms lose precisely the people most capable of pulling them upward.
• Second, internal career ladders weaken. Associates and senior lawyers increasingly see partnership and progression achieved through movement rather than development, reinforcing the perception that growth requires exit rather than investment.
• Third, technical excellence alone is no longer a sufficient differentiator. Lawyers who cannot demonstrate client portability, sector credibility or commercial relevance risk stagnation, even when their legal skills are exceptional.

In a K-shaped legal market, lateral hiring does not level the playing field. It helps sharpen the divide. 

As 2026 unfolds, firms that have a strategic and robust lateral hiring strategy will be best placed to move upwards on the K, rather than be displaced by it.

Final Thought: Is a K-Shaped Market Permanent?

A K-shaped market is not static. Movement between the arms is possible, but it requires deliberate change.

Firms and individuals can move upward by:

1. Narrowing focus rather than broadening it.
2. Redesigning services around client outcomes.
3. Reframing pricing conversations away from hours.
4. Investing in visibility, thought leadership and relationships.
5. Treating technology as a strategic tool, not a cost-cutting threat.
6. Having a robust and strategic lateral partner hiring program.

What is increasingly clear is that standing still is no longer the default position. In a K-shaped market, inaction will result in a gradual decline.

By Richard W Smith
Director GSJ Consulting

Richard W Smith is a specialist business development and growth strategist with over three decades of experience working with law firms across Australasia. GSJ Consulting is a boutique strategic consulting and growth advisory agency based in Sydney, Australia, with over three decades of experience advising law firms across Australasia.