Business of Law

Think higher billing rates are the key to higher law firm revenue? Think again, report says

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Law firms that raised billing rates at a slower pace in recent years tended to have higher demand from clients and higher revenue growth, according to a new study.

The Peer Monitor report by Thomson Reuters came to that conclusion by looking at data for the nation’s top 100 law firms, the nation’s second hundred largest law firms, and midsize firms, according to this summary. The Am Law Daily (sub. req.) covered the findings.

The report (PDF) noted that midsize firms have trimmed their rate increases over the past three years—from 2.5 percent in the first six months of 2014 to only 2.1 percent in the same period in 2016—yet average demand “climbed steadily.”

Second hundred firms accelerated their rate growth—from 2.9 percent in the first six months of 2014 to 3.1 percent in 2016—yet demand fell.

Growth in billing rates for the nation’s top 100 law firms fluctuated those same years. When rate growth slowed, demand rates increased. When rate growth rebounded, demand slumped.

For decades, many firms used rate increases to grow revenue. It could be time to re-examine that strategy, the report said, though it cautions against a one-size-fits-all strategy for law firms.

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