The first big mistake made on reducing legal fees was the focus by clients on rates and hourly discounts. We have previously talked about the value of this approach. Lower rates do not directly correlate to lower fees. Admittedly hourly rates have some impact, however, lowering unit costs without talking about number of units will have a marginal impact on costs at best.
The Next Big Mistake
Now we're hearing a lot of talk about the level of associate salaries (especially first years') and partner compensation from clients and client communities. Although it is not said quite this directly, clients are wanting to see published associate salaries and PPEP (profits per equity partner) numbers go down. Clients seem to be saying "When your comp goes down, that means I'll truly be saving money."
Thinking lower first year salaries or lower PPEP numbers will mean lower fees is yet another mistake. On the surface it may sound like there is a direct connection between lower fees and lawyer compensation, however this is not the case. To illustrate this point, consider that giving business to less profitable vendors of any type does equate to savings. In fact it has an equal or better chance of resulting in the opposite.
Taking a higher level view of this trend, I can see its source. In-house counsel have had issues with billing rates and outside counsel comp for years. So when internal pressures rose to decrease legal fees, the first two things in-house counsel would address are rates and comp.
My advice to clients: If you want to impact legal fees, focus your conversations on fees. I can appreciate the frustrations with rates and comp, but you should move past those and shift your attention to the real issue - Fees. I also appreciate that fees and cost savings are a new and challenging aspect of your job. Facing these issues head-on will be the least painful and most effect approach, in the short and long run.