Raising Rates in 2010?

We at 3 Geeks will be watching with great anticipation and interest in how the 2010 Rate Increase Season unfolds. Firms and lawyers are facing a significant challenge this year. On one hand we have a zero inflation year (based on your source). And clients are still in cost-cutting mode – not very excited or open to hearing about hourly rate increases. This puts rate increases in the proverbial ‘lead balloon’ category. On the other hand many firms didn’t raise rates much, if at all, in 2009. And they may be living on deep discounts or even prior year rates with some clients. This squeeze on revenue and profits is hurting. Even with all the law firm cost cutting efforts (ala ATL) firms have been seeing downward pressure on partner incomes (how’s that for a euphemism?). So … what will firms do? One obvious answer is Alternative Fee Arrangements (AFAs). This shifts the question away from rates to fees. However, AFAs cannot fully address the problem. First – most engagements are still on the billable hour. And second – an AFA doesn’t change the law firm business model. It merely increases the pressure to change it. Another option is to co-opt the Big Four model. As I understand it, the Big Four rarely charge at full rates and preemptively raised their rates years ago to enable this method for maintaining revenues. For law firms this would mean raising rates and discounts at the same time. This tactic will leave existing clients at a status quo, but allow firms to start from higher hourly rates on new deals. Again – this doesn’t seem like a solution as much as a maneuver. Using the Big Four model will be problematic since firms are late to this game. The outcome of the 2010 Season will likely rely on the impending client rate letters. If clients are assertive and send out a preemptive strike – calling for status quo on rates, firms will probably go along. If law firms are first to move, they may have some flexibility in increasing rates. If firms are smart, these rate increases will be strategic – done on a market-by-market basis. For instance Bankruptcy and FCPA work, which are hot, will have lower rate sensitivity and be candidates for an increase. Whereas some other un-named practice areas won’t have such a luxury. Whatever happens, the 2010 Rate Increase Season will be interesting and probably entertaining. Stay tuned.

Bookmark and Share



© 2014, All Rights Reserved.