Toby Brown, left, founder of DV8 Strategies, and Marcie Borgal Shunk, right, founder of The Tilt Institute. Courtesy photos

Smart Strategy

Law firm rates have been on the rise for years—and continue to climb. Yet rumblings indicate clients may have just about had enough. Is the era of continuously rising rates about to hit a snag? Or is it all smooth sailing? Renowned pricing expert and former chief practice officer Toby Brown, founder of DV8 Strategies and Marcie Borgal Shunk, industry analyst and founder of The Tilt Institute share their (sometimes divergent) viewpoints on the future of rates, profitability and more.

The Backdrop

A remarkable 86% of law firms expect to increase rates in the next 12 months, according to Wells Fargo, and over a decade of data from Thomson Reuters indicates worked rates have increased somewhere from about 3% to 7% year-over-year since 2007 (only once, in 2022, not exceeding the rate of inflation). Over the same timeframe, billable hours dipped, with monthly hours clocked per lawyer sinking from close to 140 (1,680 annually) to just about 115 hours per month (1,380), according to Thomson Reuters. This combination highlights a stark fact—lawyers are working less and charging more.

Clients, for the most part, have accepted (or at least been tolerant of) rate increases. Barring notable economic disruptors such as the financial crisis of 2008/2009, rate hikes have been the norm, especially outside the largest legal departments. Sophisticated law firm pricing analysts optimize profitability by giving the illusion of discounts—higher standard rates in exchange for "deals" to clients in the form of deeper and deeper discounts (as reflected in dipping realization which landed at a sad 79.5% in recent months according to ALM data). In turn, law firms sustain strong profit margins—36% on average for Am Law 200 firms in 2023—and have enjoyed inflation-adjusted growth in PEP and PPL of 32.6% and 16.6% respectively over the past decade.