Law firm economics are pretty simple. There are only a handful of drivers of law firm profitability: productivity (billable hours), leverage, realization, expenses and rates. It’s self-evident that — for the past decade — law firm profitability increased by upwards of 10% annually and even more in some firms. But only one profitability driver was operating: unrelenting annual increases in hourly rates.
For better or worse, the current economic debacle has stalled substantial annual-rate increases and led many leaders of the profession to declare that the current law firm business model is broken and must be replaced. In the past year I haven’t been to a conference where the business model hasn’t been declared dead, but none of these conferences has resulted in consensus as to what can or should replace the current model.
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