The National Law Journal released its annual billing rate survey this week and for the third year in a row, billing rates showed modest increases. For the 62 firms in the NLJ 250 ranking that provided billing rate data, the average firm-wide hourly billing rate, which combines partner and associate rates, increased by 4.4% during 2011 from $390 to $407. That increase followed on a 2.7% increase in 2010 and a 2.5% increase in 2009, all much lower than the routine six to eight percent increases seen in the pre-recession years when a seller’s market was being driven by high demand for law firm services.
While firms may have been reluctant to increase rates too much in the early years of the economic downturn, as clients’ prospects have improved somewhat this past year, firms have felt freer to boost rates. However, in today’s buyer’s market, clients are still pressing for more control over pricing and staffing decisions, which continues to put a ceiling on rate hikes.
The Hildebrandt Institute’s Peer Monitor Index (PMI) tells a similar story, indicating that rates firmed up slightly for the third quarter of 2011, rising 3.5% compared with the same period a year ago. “The story hasn’t changed a whole lot in the past year,” Peer Monitor director Mark Medice told the NLJ. “And I suspect that we’ll see a similar story in 2012, which is that rates will increase about 3 or 3.5 percent.”
The PMI report also points out that for the overall market, 2011 third quarter rate growth is the strongest rate performance in over a year. However, one size does not fit all. Peer data also suggests that while many firms are achieving better‐than‐average rate growth this year, other firms are not faring as well and are seeing flat or even slightly negative rate growth. Some firms are being more strategic and are targeting key practice areas and attorneys that will bear rate increases, while leaving others alone, says Medice.
Medice also believes that the rate increases reflect some shifting of work to more senior attorneys in response to the “first-year dilemma,” a topic that we’ve written about before. “We’re starting to get some information that firms are taking a harder look at associates,” Medice said. “The use of first- and second-year associates has declined, and there’s a stronger mix of senior associates in the pool.”
Under increasing client pressure for greater value and lower costs as well as fiercer competition for legal market share, according to Medice, “[the] question now becomes, ‘How do we grow revenue?’” He added, “I think we’re on a relatively steady path to change in the pricing and relationship model, even though alternative fee arrangements are still only about 10 to 12 percent of business. I think we’ll see a lot of law firm mergers as well.”
Posted by Marianne Purzycki