Corporate & Securities Law

Legal Rate Increases: Bold or a Boomerang?

By John Wallbillich

Some large law firms are trying to navigate the murky waters of rate increases. Not easy to do in this market; some would suggest it may not be wise, either, as most large corporate clients are looking to lower costs on an absolute and unit basis.

One thing for certain–it’s a hard issue to explain to the press. A case in point, as reported in Crain’s Detroit Business (reg may be required, sadly):

Rex Schlaybaugh, chairman and CEO of Detroit-based Dykema Gossett P.L.L.C., said his law firm pursued cost efficiencies to improve the bottom line during last year, and was still holding discussions with individual clients about rate increases for this year.

He expected the firm would not finalize rates for a few more weeks, but has generally raised rates an average of 3 percent-5 percent in recent years to keep up with costs.

I am impressed by the candor, and know that the annual rate increases (up until about 2007 or so) were something that managing partners counted on and corporate clients (sort of) expected.

But in the last few years, it’s harder to fathom for clients who are cutting costs themselves and seeing withering international competition for their own products and services.

It appears that some firms are initially using cost efficiencies to bolster profits and moving somewhat more gingerly about translating those actions into lower costs or clearer value for clients.

Mr. Schlaybaugh went on to say that alternative fees are about 15 percent of firm revenue, with volume-based discounts and fixed project-based fees the two most common options.

Of course, any firm with a history of rate increases is really just giving part of those back to clients, not really providing net savings. And GCs need to be able to show that sort of cost improvement to CFOs with a long memory and a short fuse.

Getting more guaranteed work (aka “volume”) in this market is hard for any firm. Saying we will raise your rates unless you do is the sign of a great firm whose talented lawyers are in consistent demand.

But you better be right, or it may come back on you when you least expect it.

Full post as published by The Wired GC on February 15, 2010 (boomark / email).