Jill Zwetchkenbaum | Senior Manager of Client Relations | Goulston & Storrs;
Brian Carrozza | Director of Client Development| Goulston & Storrs
The Wall Street Journal recently reported that some elite law firms are charging upwards of $2,500 per hour and raising hourly rates 9%, on average, during the first half of 2024. These are eye-catching numbers that the article attributes largely to the ever-growing war for talent: firms are paying top dollar to woo a relatively small pool of rock-star attorneys. These trends are particularly pronounced among certain practice areas, such as M&A, regulatory compliance, tax, and private equity. In response, some companies are pushing back on these rates and annual increases, questioning their sustainability. To help control costs, clients are deploying strategies ranging from competitive bidding and moving work in-house to shifting matters to smaller firms and insisting on alternative fee arrangements (AFAs).
Takeaways for Legal Sales and Service Professionals:
- Clients are Pushing Back on Rising Fees
Takeaway: Some large corporations are actively questioning the value of what they perceive to be exorbitant hourly rates. By offering more flexible pricing models through AFAs such as fee caps and fixed rates, firms can better demonstrate that they understand clients’ expectations and desire for billing predictability and transparency.
Action: Collaborate within your firm to develop and proactively offer to clients pricing strategies that connect with their expectations and desire for billing predictability and transparency. Don’t wait to be asked.
- Competition Among Firms is Intense
Takeaway: Many law firms continue to see fierce competition for top talent. While expensive lateral hiring in this competitive marketplace may bring in new clients, it also has the potential to drive hourly rate increases that are out of step with the expectations of certain existing clients. Companies like beer maker Heineken have responded by moving some matters away from large firms to smaller boutiques that can offer quality work at lower rates.
Action: Emphasize your firm’s value proposition beyond expertise, speaking to aspects such as exceptional service, strong relationships, and tailored solutions.
- Embrace Technology and Innovation
Takeaway: As clients such as oil and gas multinational Shell “constantly test the market for efficiency and cost effectiveness,” they have begun to ask law firms explicitly how they are using generative AI tools. Firms must continue to adopt and engage new technologies—such as in the fertile ground of generative AI—to help streamline and control costs for clients.
Action: Stay up-to-date and informed about advancements in legal technology and current innovations that increase efficiency for your firm’s clients. In an increasingly competitive landscape, this proactive approach to technology-based solutions may offer your firm a hard-won competitive advantage.
- The Bifurcation of the Legal Market
Takeaway: The legal industry is becoming increasingly bifurcated, with some of the top firms with large corporate practices coming in at the very highest hourly rates and annual rate increases, while significantly more modest rates and annual increases are being seen among the Am Law 200, midsize firms, and boutiques. Clients’ pushback on the former group may present opportunities for the latter cohorts.
Action: Develop messaging that differentiates your firm's offerings, including its value propositions and pricing strategies. Armed with the information from this article, consider how you would counterprogram when you are up against a top firm, focusing in particular on value to the client at hand.
- Sustainable Client Relationships Matter
Takeaway: General counsel such as those at chemical giant BASF and global commercial real estate firm JLL note that, while elite firms’ reputations are often well-deserved, the long-term financial sustainability of their hourly rates and annual rate increases may be in question for some clients. Firms that emphasize efficiency and cost effectiveness, and foster pricing predictability and transparency, may be better positioned for longer-term, sustainable growth with particular clients and industries.
Action: Strengthen client loyalty by focusing on building trust, providing cost predictability, and aligning legal strategies with clients’ business objectives, considering how your firm’s pricing strategy aligns with how clients perceive value.
By considering and potentially implementing some of these strategies, legal sales and service professionals may be empowered to approach proactively and respond effectively to some of the challenges outlined by Erin Mulvaney in this Wall Street Journal article, helping firms build new sources of sustainable competitive advantage in an ever-evolving legal market.
