Pricing

A 'Sweatshop'? Lawyers Detest Law Firm Cultures That Emphasize Profitability

"Profit-mindedness" was identified as the top law firm culture trait that inspires lawyers' negative feelings toward their firms.

Some law firms will likely try to expand profits at all costs this year, particularly if they saw modest growth in 2023. But they do so at their own risk, as “profit-mindedness” remains the most commonly identified negative aspect of law firm culture, according to results of a new survey.

“The continued disdain for emphasis on profitability” was among the primary findings of the 2023 Law Firm Culture Survey report from Major Lindsey Africa, released Tuesday. Nearly 40% of respondents identified “profit-mindedness” as one of the top traits that inspires negative feelings toward their firms—easily the most frequent response on the topic of law firm culture. Read more...

A Partner's Time Is Suddenly Worth A Lot More In This City

Helluva rate increase you've got there.

A recent report from Wolters Kluwer ELM Solutions found above-average rate increases — from $674 per hour in 2022 to $770 in 2023 for a partner — in which city?

Hint: The ~14% rate increase is much larger than the industry average. Read more...

Where Are Big Law Billing Rates Growing the Fastest?

Some lawyers have seen a rate increase above 20%. Overall, lawyers in financial services and health care, and in markets such as Dallas and Houston, all saw notable rate hikes.

Average billing rate increases were high last year, perhaps historically so, and some industry observers already expect a similar 2024. But a new report this week illustrates the variation beneath some of the rate averages.

Nearly a third of timekeepers saw no change in what they billed in 2023, according to analysts who published the Real Rate Report—an analysis of legal invoices sourced directly from corporations’ and firms’ e-billing software. Meanwhile, close to 10% of timekeepers saw their rates increase by 20% or more. Read more...

The law firm productivity metric: How long will it matter?

For law firms today, measuring productivity by hours-worked is vital at the moment, but dependence on that metric may be ripe for a change

There is an argument to be made that law firms have poorly defined productivity as a metric for almost as long as they’ve used it. Productivity is typically defined as the number of billable hours a lawyer works (or perhaps more appropriately, the number of hours the lawyer enters into billing) in a given time period. In this sense, it’s not really so much a metric about how much work the lawyer has done, but rather a measure of how much time the lawyer spent doing it. Read more...

Wolters Kluwer’s Real Rate Report shows legal rates continue to grow

Authentic legal invoice data provides law firm rate benchmarks for more informed outsourcing decisions

A new report from Wolters Kluwer ELM Solutions indicates that partner, associate and paralegal rates have continued their steady upward climb. The 2023 Real Rate Report utilizes the more than $160 billion in legal invoice data contained within ELM Solutions’ LegalVIEW database to provide benchmarks of law firm rates and help corporate legal departments identify how factors such as location, practice area and firm size are shaping their legal invoices. Read more...

Why Some Firms Are Still Getting Pummeled on Rates

Rates are soaring. At least for some firms. Not all are giants.

Still, other firms continue to suffer a rate pounding as clients look to extract another pound of flesh.

In the new Law Firm Leaders Burning Issues survey of more than 250 law firms conducted with my longtime friend and collaborator, internationally recognized law firm consultant Patrick J. McKenna, we dissect how these law firm leaders are experiencing rate pressure. Read more...

Big Law Rates Continue Rising, But Trail 2023 Increases So Far

The average Am Law 50 firm upped its rates by 8% to 10% in 2024, according to bankruptcy records.

Big Law firms appear to be dialing back annual rate increases in 2024 after raising rates more aggressively in 2023, according to an American Lawyer review of rate increase notices via bankruptcy court filings.

A cohort of 10 Am Law 50 firms that posted a rate increase notice in late 2023 or early 2024 rolled out rate hikes of roughly 8% to 10%, whereas the same group of firms raised rates between 10% and 15% in early 2023. Read more...

After Moderate Revenue Gains, Law Firms Plan for Growth in Both Deals and Litigation

"The mindset is toward growth as opposed to cutting, and that’s a change over the last 18 months," Wells Fargo's Owen Burman said.

Law firms didn’t get a hoped-for transactional rebound to end 2023. But they did see acceleration on the demand and revenue front, a strong collections push and billing rates that continued to climb to new heights, according to results from a Wells Fargo survey.

Additionally, as opposed to last year, many in the industry believe they have their staffing levels calibrated to capture an upswing in work and they’re optimistic that countercyclical practices will stay hot while also getting that much-anticipated transactional pickup. Read more...

Gen AI Could Force Lawyers, Clients to Talk Differently About Billable Hour, Legal Pricing

Lawyers have historically stayed mum about the value of their work and the resources needed to perform it. But if they want to move away from the billable hour, that's going to have to change.

When a latte in Manhattan can cost close to a lunch in San Antonio, for any customer, the concept of how expensive something is, and how much it should cost, can get murky.

For many lawyers and clients, this incongruence is at the crux of an obstinate pricing model, the billable hour, that many deem responsible for making legal work tedious and the legal market resistant to change. Read more...

Aggressive Rate Hikes, Head Count Management Helped Am Law 50 Squeeze Profits From Sluggish Demand in Q4

The Am Law 50 finished the fourth quarter with nearly 8% more fees worked than Q4 2022 despite a decline in demand, according to a new Thomson Reuters report.

Financial discipline helped the Am Law 50 close out 2023 strong as transactional demand remained slow, according to a new report from Thomson Reuters.

Compared to Q4 2022, demand in the Am Law 50 fell nearly 2% last quarter, while demand rose by more than 2% for the Am Law 51-100 and the Second Hundred. Still, the Am Law 50 saw nearly as much of an increase in overall fees worked—nearly 8%—compared to respective increases of roughly 11% and 9% for the Am Law 51-100 and Second Hundred. Read more...

AI Might Kill Off the Billable Hour Someday, But It Will Be a Slow Death

"The people who regulate the profession are the profession. They are judges and members of the bar. So what incentive do they have to give away that control to the machine?" said Foster Sayers, vice president of legal ops at health tech company symplr.

The legal industry’s deeply entrenched pricing model—the billable hour—isn’t going away any time soon, though generative artificial intelligence may chip away at its dominance for certain types of work, in-house counsel and legal industry experts say.

A newly released report from the law firm network Lex Mundi has reinvigorated the age-old debate on the topic. It declares that AI may lead corporate clients to put more pressure on firms to justify prices, and firms may have to demonstrate value beyond the number of hours lawyers spend on client matters. Read more...

KPMG Law chief: GenAI will reshape conversations about billing

Generative AI will move lawyers further away from hourly billing and into discussions with clients about the need for a commercial return on their investment in the technology, the global head of legal services at KPMG has predicted.

Stuart Fuller also said junior lawyers would need to be trained to handle more complex work earlier on as the technology took over some of their traditional tasks.

Speaking to Legal Futures about AI, Mr Fuller said a new approach to billing would be “one of the major challenges” for traditional law firms. Read more...

Dykema’s Former CIO: Gen AI Offers ‘Reason to Get More Creative’ With Pricing Models

Legaltech News sat down with Ed Empamano, Dykema’s former chief innovation officer and the new senior vice president of Consulting and Transformation at K2 Services, to discuss where generative AI will be the most impactful in the legal industry.

After spending close to two decades in law firms, Ed Empamano left his role as Dykema’s chief innovation officer to take on the newly created role of senior vice president of Consulting and Transformation at K2 Services this month.

K2 Services is the new entity formed last year from HBR Consulting’s IT, Managed Services, and Keno Kozie business, which split from HBR’s Advisory business in late 2022. Read more...

Why this time it's different: How generative AI may finally kill the billable hour

Legal market pundits have questioned for decades when the billable hour will finally die. A simple internet search – maybe using Chat GPT – will guide you to headlines that pronounce the billable hour dead or anticipate its imminent demise. Jordan Furlong’s position – noted in a recent interview in this publication – is that the billable hour “will survive until shortly after the sun dies.”

I agree with Jordan that the billable hour will persist in some form for a very long time. It has proven resilient despite the apparent appeal that alternative fee arrangements (AFAs) present for in-house counsel – namely cost predictability, the alignment of the client’s interests with those of its service provider, a simplification of the billing process, and encouragement of innovation in legal service delivery models including the greater use of legal technology to lower the cost of legal services. Read more...

Generation tech

Generative AI is transforming the way lawyers work. But it poses multiple challenges for firms, from procurement to data security. Above all, how much human interaction should AI replace?

Law firms have been using AI for e-discovery, deal due diligence, document analysis and automation for nearly a decade. But until ChatGPT was launched in November 2022, the legal sector was a follower rather than a leader in the AI space. Now law firms are, unusually, in the vanguard of change.

Last year, a Goldman Sachs report identified law as one of the sectors most likely to be disrupted by generative AI – and predicted that 44% of legal tasks could be replaced by AI applications. At the same time, OpenAI’s large language model GPT-3.5 passed the US bar exam. Last year was significant in that all the major stakeholders – law firms and other legal services providers, legal tech vendors, law tech start-ups, legal academia, the judiciary, institutions and regulators – started exploring generative AI. Read more...

Costs

Big firms under costs pressure as salaries rise faster than revenue

Soaring staff costs are outstripping increases in revenue and causing profits to nosedive, figures from two leading firms appear to show.

Annual accounts for international firms CMS and Trowers & Hamlins – both published in the past week – show that staff costs have risen at more than double the rate of increase in turnover.

The figures suggest that inflationary pressures and firms having to hike salaries to match the cost of living may be supressing profits. Read more...