Legal Industry Report Marks Four Themes Affecting Law Firm Pricing
Summary: The recent 2014 Real Rate Report published by Datacert | TyMetrix mark four emerging themes that affect law firm pricing. The report is created analyzing real invoice data and not by a survey. The publishers analyzed more than $16 billion worth of actual law firm invoices to arrive at their conclusions.
Last week, the 2014 Real Rate Report was jointly released by Datacert | TyMetrix after analyzing law firm invoices from 2007 to 2013. The report authors analyzed invoices amounting to $16 billion net billing to prepare their report. The report found the growth in billing rates increased only by 3.7 percent, while in the year preceding the recession, it grew by 7 percent year-on-year.
Craig Raeburn, Vice President, Legal Analytics, Datacert | TyMetrix, said, "This year’s findings demonstrate the growing power in the hands of legal departments to demand more affordable pricing alternatives for their legal work; this is knowledge that is crucial for legal professionals to make smarter business decisions."
The report highlights four key themes for legal departments to keep in mind:
- First-year associates are in lower demand – Corporate legal departments are willing to pay a premium for higher quality work with quick turnaround time. This means the demand for first-year associates have gone down significantly. In the past five years, there has been a 60 percent drop in the ratio of hours billed by first-year associates.
- Law firm size matters most in hourly rates – Across a range of more than 350 factors that influenced law firm billing and rates, the report authors found law firm size to be the biggest factor. This is regardless of the type of work performed.
- Certain practice areas are more open to rate negotiations – The report found that matters in certain practice areas were more open to negotiations over rates than in other areas. Practice areas where rates were more flexible include corporate, mergers and acquisitions, and regulatory/compliance. In some cases, rates for similar lawyers in the same practice area differed by more than $240/hour indicating greater opportunity for rate negotiations.
- Duration length of a matter and staffing affect total costs - This should be elementary, nevertheless the report once again confirms that when partners spend 5 percent more time on a matter, total costs are driven up by about 10 percent. Some law firms are rethinking their staffing models due to this situation and bigger firms are trying to use more associates on larger matters and trying to optimize the time a partner has to spend on a single matter.
Brian Lee, managing director of CEB said the 2014 Real Rate Report helps corporate law departments identify cost-saving opportunities when working with different law firms and provides a roadmap when it comes to pricing services for external legal service providers.
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