Credit: Sergey Nivens – FotoliaSorry Clients: Higher Law Firm Billing Rates Really Do Pay Off
An analysis by Citi Private Bank's Law Firm Group shows the advantage of aggressively raising published billing rates.
February 21, 2018 at 05:20 PM
2 minute read
Law firms do better when they raise their published billing rates at a faster clip, even if those increases result in a widening gap between published and realized rates, according to a recent analysis by Citi Private Bank's Law Firm Group.
“The analysis we have is how the consistently most successful firms have increased rates versus the broader industry during 2010-17,” explained Gretta Rusanow, head of advisory services for the group.
Top-performing firms increased their rates at an average annual rate of 4.4 percent, compared with an increase of 3.3 percent for the broader sample, Rusanow said in an email. While those top performers saw a wider gap between their published and realized rates, their realized rates nonetheless grew faster than at the other, less aggressively priced firms.
At top-quartile law firms—grouped by Citi based on profitability, contribution per lawyer averages and net income margins—“realized rates grew at an average annual rate of 3.5 percent, compared to 2.8 percent for the broader industry,” Rusanow said.
“The key takeaway,” according to Rusanow: Firms continued to increase published rates while taking deeper discounts. That's how the top echelon of firms “widened their rate advantage.”
The trend persisted in 2017. Citi's most recent survey of law firm performance showed that for the most successful firms, published rates increased 5.6 percent, versus 4.2 percent for the broader sample. At the same time, realization rates increased 5.7 percent for the most successful firms, versus 2.9 percent for the broader sample, Rusanow said.
Billing rates overall have continued a steady climb in recent years, despite pressure from clients insisting on discounts, decreases and other cost savings.
For law firm consultant Janet Stanton of Adam Smith Esq., the Citi analysis confirms that the elites have a built-in advantage.
“This is more of the same,” Stanton said. “There has been a pulling away of firms with a stronger performance. To me it also says something about the greater value of brand strength.”
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