ABA Journal

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A Message from Westlaw

Effective Rate Strategies in Turbulent Times

Posted Aug 29, 2011 7:45 PM CDT
By Mark Medice, Peer Monitor

For many years, rate growth was the lifeblood of firms. Hourly billing rates increased annually like clockwork, and accounted for a significant portion of firm revenue growth.

But rate growth has been slowing dramatically for the past several years, owing to a combination of factors: increasing pushback from clients, growing use of alternative fee arrangements such as fixed pricing, and increasing global competition. Rate growth got an additional downward shove from the financial crisis, but Peer Monitor Index data (PDF) indicates rate growth has been in a long-term downward trend that predates the recent recession.

While overall rate growth remains stuck near the lowest levels seen in many years, our data indicates some firms are experiencing strong rate growth while others are lagging. The difference is often a matter of which firms employ well-designed and well-executed rate strategies.

The current market environment calls for firms to be more strategic in how they manage their rates. Across-the-board rate changes no longer work. A thoughtful analysis of rate performance against relevant peers can often identify areas where firms can improve their rate structure. Key strategies include analysis of the rate performance of high-demand partners, the use of tiered rate structures, and the use of marginal client rate strategies.

Setting rates has often been an alchemist’s hodge-podge of historical rate increases, anecdotal evidence of rates from competing firms, and sometimes, plain old guesswork. In the current legal market environment, firms can no longer afford to price themselves out of the market or, conversely, leave money on the table. Errors in rate strategy can produce a long-term drag on overall firm performance, as the negative impact of lower rates typically takes many years to overcome.

New business intelligence analytical tools, such as Peer Monitor, can provide valuable insight for setting effective rate strategies to help maximize a firm’s revenue potential. Peer Monitor compares firm performance against user-selected peer groups. Subscribers can perform dynamic queries that slice and analyze data across different time periods, matter types, practice areas, timekeeper levels, client industries and more. In addition, Peer Monitor’s new RATES PLUS provides enhanced rate information from over 1,500 large law firms for deeper analysis.

Clients are demanding demonstrable value for the fees they are paying. New analytical tools, such as Peer Monitor and RATES PLUS, can help firms align their rates to better reflect the value of the services they are providing to their clients, in turn bolstering firm revenues and profitability in an increasingly competitive environment.

Mark Medice is head of Peer Monitor, a law firm performance benchmarking service from the Hildebrandt Institute. Mark can be contacted at .(JavaScript must be enabled to view this email address). For more information on Peer Monitor, go to peermonitor.thomsonreuters.com.

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