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The American Lawyer released a recent report, conducted by LexisNexis’ legal pricing data service, CounselLink, which revealed that large law firms continue to dominate high-rate work and firm discounting is on the rise as clients reexamine their relationships during the pandemic in 2020. Now in its seventh year, CounselLink’s Trends Report is based on data derived from $35 billion in legal spending comprised of almost seven million invoices and more than 1.7 million matters. According to the report, the country’s largest 50 law firms, which each have more than 750 attorneys, earned 62% of invoice amounts billed last year in three combined categories: mergers and acquisitions; corporate, general and tax; and finance, loans and investments.

Additionally, the report found that partner billing rates for lawyers at the largest 50 firms, which have more than 750 lawyers, are 51% higher than those of partners in firms with 501-750 lawyers. And partner billing rates in firms with 201-500 lawyers are 29% higher than those for partners in firms with 101-200 lawyers. “I don’t think people realize how strong the correlation is between the size of the firm and the rates,” notes Kris Satkunas, Director of Strategic Consulting for CounselLink and author of the Trends Report. “Firms slightly smaller than the “largest firms” category, ones with head counts of 501-750 lawyers, have an opportunity, she added, as clients look for high-quality legal work at a lower cost.”

Five major cities showed rate growth of 4% or more over the last year, and over the last 3 years, the report notes. The biggest growth spurts in attorney rates for the last year were in New York City (6.9%), Boston (5.9%), San Francisco (5.7%), Washington, D.C. (5.2%) and Chicago (4.7%). Each of the five cities saw attorney rates grow at or above 4% in both annual rate growth and compound annual growth rate over the last three years. On the opposite side of the spectrum, three cities saw hourly growth rate below 3% in both metrics: Miami, Minneapolis, and Phoenix.

As clients reexamine relationships with their law firms this year during a recession, Satkunas said the industry may see more discounted bills. And the CounselLink data is bearing that out. The report found a trend of increased discounting in the past few months of 2020, with more than 16% of bills discounted in May, a threshold normally crossed only at the end of the year. However, Satkunas added she was hopeful that more firms will work with clients to adopt alternative fee arrangements, which have grown in popularity in recent years. In 2019, 12.1% of matters were billed with an alternative fee arrangement, up from 9.2% two years ago, and she said there is now an opportunity for firms and clients to be more creative, (as quoted in The American Lawyer).

See more highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer reports that law firm revenue growth in the first nine months of 2018 was the highest it’s been since 2007, and the outlook going forward remains positive. According to a new report, released by Citi Private Bank’s Law Group, overall revenue grew by 6.3 percent and demand was up 2.5 percent during the first nine months of 2018 compared to the same period in 2017. Many firms showed wider profit margins as a result of demand and billing rates grew at a level that outpaced an increase in expenses, the report revealed.

The Citi Private Bank’s report found that among the Am Law segments, size mattered, with Am Law 50 firms outperforming the other market segments in both lawyer rates and demand. Smaller, niche firms saw the greatest growth in revenue at 7.8 percent, and the second-greatest growth in demand at 2.5 percent. Looking at firms by geographic reach, the report revealed that global and international firms posted stronger revenue, demand and rate growth than national and regional firms, (as quoted in The American Lawyer).

“More than likely, this will be a year of strong top-line growth for the industry, but also characterized by expense pressure and continued dispersion among market segments,” notes Gretta Rusanow, research co-author and head of Citi Bank’s advisory services. “As firms end 2018 and look forward to 2019, it will be even more important to ensure that continued growth is profitable, particularly as this extended period of growth points to a looming downturn at some stage. Further, while our dispersion results show that some firms are enjoying even greater success than the average results of 2018 are showing, it also suggests that some firms are struggling mightily. We would expect this phenomenon to lead to further and perhaps accelerated consolidation ahead,” she adds.

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

Law firms have a lot of room to increase leverage, despite clients pushing back against the use of more junior lawyers, reports ALM Intelligence Analyst, Nicholas Bruch from The American Lawyer. Bruch notes that real-world pyramid structures will never be perfect, nor will work cascade down them smoothly. However, he adds it’s hard to escape the inference that there is a lot more room for increased delegation and leverage. In addition, there are many forces that align against increasing leverage, however, they can be overcome.

Nicholas Bruch notes that a starting point is that partners be clear on what increasing leverage requires. “It is not achieved, as some partners initially think, by adding associate hours on their matters, something they know to be difficult given the pushback they get from clients on ‘overstaffing.’ Rather it is about replacing partner hours with associate hours, keeping total hours close to constant, and bringing down total billings,” Bruch adds.

According to Bruch, it helps to also track and report out on leverage as closely as firms track partner hours; to get profitability measurement right (i.e. not just realization, but the combined effect of realization and leverage); and to have structured discussions about increasing leverage among partners (so all can see leverage can be increased without departing from the group identity as great lawyers). Curiously, raising partner billing rates also plays a role: some partners like to keep their rates low as they know not all they do is true partner work; raising partner rates leans against this, (as quoted in The American Lawyer).

Nicholas Bruch concludes that that the overarching message is that firms need to grow PPP to be competitive in the market for partner talent; increased leverage is a proven driver of PPP growth; today’s leverage levels are about half of what they could be; and firms have proven they can raise leverage despite the forces that align against doing so. The implication: leverage increases have a lot further to go.

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

As law firm billing rates are rapidly increasing overall, a new study shows that firms that raised their rates more slowly are starting to see better revenue growth. According to the report, released by Thomson Reuters’ Peer Monitor, law firms that increased their billing rates at a more gradual pace are experiencing an increase in demand from their clients. Although the demand for legal services overall is down, the study shows that some firms are getting a much higher volume of work than others. “Firms that are willing to take less of a rate increase seem to be doing better with demand,” said Leonard Lee, an analyst at Peer Monitor.

In the first half of 2015, Am Law 100 firms saw a drop in demand by 0.2 percent, similar to Am Law Second Hundred firms, which saw a decrease of 0.4 percent. However, mid-sized firms that benefitted from a softer increase of billing rates saw a 1.6 percent increase in demand overall. The report warned its readers that this is not a proven method to increase revenue, and there may be other factors to consider. “Over the last few years, a lot of work seems to be moving down market,” Lee said. He explained that the study gives averages and every firm is different, but the data shows a definite correlation between rate increases and revenue.

See the full report and article on The American Lawyer.

Contact Bill Sugarman for more information.