You know that when Charles Darwin appears in an introduction of an industry status report that times aren’t great. “As an analogy for the challenge faced by law firms in today’s radically changed market environment,” write the authors of , “the survival of the most adaptable seems particularly fitting.”
The Report on the State of the Legal Market in 2017
Thomson Reuters and Georgetown Law team up for this well-researched and highly-cited annual report, which focuses on large and mid-size law firms. This year’s report is notable as it explores the decade after the global economic collapse, prior to which law firms recorded record profits.
As you scroll through the report detailing the past ten years, you will notice charts head mostly in one direction: Down. Either that or they’re flat. Demand for legal services: Down. Number of billable hours worked: Down. Collection rates: Down. Profitability: Flat. Billing and collection cycles: Flat.
Down down down flat flat.
One chart that goes up is billing rate. However, understand this rise has a big caveat. The authors caution that billable rates for law firms are frequently only published rates, akin to off-the-shelf hotel room prices, which are almost never fully realized. Furthermore, the study points out that more clients are demanding ceilinged budgets to their litigation, meaning there is no longer a direct correspondence between hours worked and hours billed.
Is there any
good news in the report?
Yes. For smaller firms, one thing to be aware of is that huge clients are no longer looking to large firms for all aspects of their legal work.
As the study observes, “Prior to 2007, clients would typically entrust an entire transaction, litigation, or other project to one of their outside law firms, and the selected firm would handle all aspects of the matter ‘from soup to nuts.’ While this approach was clearly advantageous for law firms, it resulted in higher fees for clients, partly because firms tended to have many of the tasks involved in the matters performed by professionals who were overly qualified for the jobs at hand. As a result, clients over the past 10 years have been increasingly willing to break particular matters into their constituent parts and to decide, with respect to each part, how the services needed could be provided most efficiently and cost-effectively.”
Furthermore, if you are willing to think outside the box about business and not follow the herd, there is more good news. The report does a great job of exploring alternative fee arrangements, or AFA’s, and how they are being employed by forward thinking firms with success.
Discover more about Alternative Fee Arrangements in our e-book.
Additionally, the report discusses firms that take a more proactive approach—it says they are having more success than those that are simply reactive. Creative firms don’t wait until a crises arises, but continually reach out to clients to help with minor legal issues and can identify opportunities for further services. This approach can lead to recurring billing structures, ensuring a constant and predictable stream of revenue.
See how you can easily implement recurring billing in your law firm.
Bottom line: If you’re going to follow the herd, which is unfortunately often the default mode of anyone in the legal profession, expect things to continue the way they have the last decade. However, keep in mind that you might just follow the herd over a cliff. Instead, adapt and you’ll thrive.