Now is the time for mid-sized law firms to press their advantage in billing rates to capture the corporate work that has been going to the largest AmLaw law firms. Corporate GCs are questioning if BigLaw partners are worth the cost and they are looking for more cost-effective law firms.
On average, senior partners at the megafirms (400+ lawyers) charge clients 33.7% more per hour than senior partners at mid-size law firms (150-399 lawyers), and a whopping 62.5% more than senior partners at smaller (<150 lawyers) law firms, according to the BTI Billing Rate Reference 2014 report.
- Junior partners at megafirms charge 30.4% more than junior partners at mid-size firms and 50.9% more than partners at smaller firms.
- Associates at megafirms charge 22.% more than associates at mid-size firms and 45.7% more than smaller law firms.
“The 50 largest law firms are ill-advised to charge these high rates, because if you look what's happening in the market, more work is being shifted to the middle range of firms,” said Judie Bronsther of New York, an attorney and President of Accountability Services, a national legal auditing and cost control specialist.
Which rates to raise
The data suggest that it is time for large and mid-sized law firms to raise their rates, so long as:
The practice provides complex services, and not the routine matters that GCs are assigning to in-house attorneys.
The firm is able to deliver results and match the high levels of client services provided by megafirms.
There is a big difference in billing rates, as there is for M&A and corporate transactions.
The practice is not intensely competitive, as it is in labor and employment law.
The firm can sustain the increase and not give it away with discounts. Anywhere from 21% to 30% of all legal fees are discounted, according to Altman Weil.
The practice is not offered by outsourced overseas lawyers. Known as “legal process servers,” these virtual lawyers may have seven years of law firm experience and charge only $150 to $200 per hour.
Some firms that fail to increase their billing rates early on risk getting left behind by their competition or seen as less valuable by clients, according to consultant Peter Zeughauser of Newport Beach, CA.
Don't miss the market cycle
“Clients associate the value of the services with the rates they pay, and if the rates are too low, the clients perceive that the services are not as good,” Zeughauser told Law360. “Likewise, if the rates are set to market or even higher, clients perceive the services as better.”
“It's important not to fall behind the market,” said Zeughauser. “If you miss a rate increase, you're missing out on the cycle.”
Law firms should benchmark their rates against those of competing law firms. Firms should look closely not just at firm averages, but particular partners or practice groups. Clients are often willing to pay more for a particular attorney, but that does not mean they'll be willing to pay more across-the-board.
“When considering a blanket across-the-board increase in rates, firms need to look at who corporate counsel see as their peers,” said Jon Resnick, managing director of Huron Legal. “They should ensure that their rates are in the same ballpark.”
To figure out what exactly that market is, firms should be honest with themselves, taking a close look at the value they give to clients and the level of services they can really provide, Law360 reports. In some cases, a firm's perception of itself may not line up with what clients see.preside
“If a law firm is billing lower than competitors, they need to look at a couple of things,” said BTI Consulting Group Inc. President Michael Rynowecer. “They should look at their overall pricing strategy — are the lower rates part of an overall strategy? Did they decide to offer discounts, or are they underpriced?”
Firms should also look at their negotiating skills, Rynowecer added, noting that many firms undervalue themselves in negotiations or put the wrong person in charge of negotiating rate increases with clients.
In addition, firms should look at their competitors to see whether billing rates alone set them apart. Some firms may find that they are on the lower end of the spectrum because they lack a certain area of expertise, according to Resnick.
“Geography, client base and practice group concentration can all play into whether or not you should match what the competition is charging,” he said.