In April, Altman Weil released the results of its 2013 Law Firms in Trasition survey. Law firm pricing plays a prominent role this year: two of the survey’s five “changes that the profession is facing” are pricing issues.
The 2013 survey reports that law firms “feel real pricing pressure from clients” and “recognize the competitive forces of commoditization and the emergence of lower-priced, non-traditional service providers.” Unfortunately, according to survey author Thomas Clay, law firms’ answer to these challenges are not strategic.
Pricing discounts are the easy, non-strategic, response to client push back on law firm rates. Virtually all firms offer them. But without appropriate oversight of discounts, firms can find themselves in the counterproductive pursuit of unprofitable revenue.
The Pricing section– one of eight in the survey (Transition & Change, Clients & Value, Lawyers, Growth, Succession Planning, Pricing, Economic Performance, The Future) — is divided into three categories: Billing Rates, Pricing Discounts, Alternative Fees. Here are brief summaries of each category.
- More than 90% of firms raised their standard hourly billing rates in 2013 by at least 1%.
- Almost 50% of firms raised their hourly rates by 5% (mostly in associate rates).
- “Smaller annual billing rate increases” as a permanent trend jumped ten percent to 67.9%.
- “More price competition” continued to inch upward on the permanent trend scale.
- Three times as many firms expect their effective (realized) rates to drop compared to the last two years.
- 78% of firms require attorneys to secure some form of approval before discounting hourly rates.
- For firms that use a percent threshhold: 22% require 1-5%; 31% require 6-10%; 47% require >10%
- For firms that use a dollar threshhold: 56% require $500-1,000; 44% require $1,001-5,000
- Firms under 250 lawyers report, as a median, 21-30% of firm revenue comes from discounted rates.
- Firms above 250 lawyers report a higher median: 31-40% of firm revenue from discounted rates.
- 96% of firms report using “non-hourly based billing” (firms above 100 lawyers report nearly 100%).
- For firms above 250 lawyers: nearly 60% report that more than 10% of firm revenue comes from alternative fees.
- For firms under 250 lawyers: 61% report that alternative fees are a small percentage of firm revenue (less than 10%).
- 46% of firms increased the amount of alternative fee revenue it collected.
- Approximately 69% of firms use non-hourly billing rates only when requested by clients (“reactive”).
- How profitable are alternative deals? 16% more profitable, 40% as profitable, 30% less profitable, 14% don’t know.
- “More profitable” AFAs continued three-year, upward trend: ’11 = 12%, ’12 = 14%, ’13 = 16%.
- 79% of “Proactive” firms vs. 44% of “Reactive” firms found profitability with AFAs.
- Firms that saw a decrease in the percentage of revenue from AFAs doubled from 2012.
- “More non-hourly billing” remained high (79.5%), but unchanged from 2010.
The survey was conducted in March/April 2013. Law firm leaders (i.e., managing partners and chairs) from 238 firms (with more than 50 attorneys) participated in the study. Overall, 37% of the NLJ 250 and 34% of the AmLaw 200 particiated. Full report is available at:
LAW FIRMS IN TRANSITION 2013: AN ALTMAN WEIL FLASH SURVEY