Are Firms Trimming Rates for More Business? Lower Rates May Lead to Higher Demand & Revenues, Says Peer Monitor Report
A new report from Thomson Reuters Peer Monitor finds that large law firms willing to accept smaller rate increases are on average experiencing higher demand and revenue growth.
For many years, annual rate increases have been seen as a reliable means for firms to grow their revenues. But in an increasingly flat market in demand for law firm services, the report found that, over the last three years, firms with slower rate growth tended to have more growth in demand and revenues than firms that raised rates more aggressively.
Overall rate growth has been slowing steadily in recent years. After reaching a post-recession high of 3.4% in 2012, worked rates (or negotiated rates) grew only 2.7% in 2015.
But the Peer Monitor report found that firms willing to accept smaller rate increases may be rewarded with increased demand from price-sensitive clients. For example, Midsize firms reduced their average rate growth from 2.5% in the first six months of 2014 to only 2.1% in the same period in 2016. Meanwhile, the average demand for Midsize firms grew steadily over the three intervening years.
Conversely, firms in the Am Law 101-200 range accelerated their rate growth from 2.9% in the first six months of 2014 to 3.1% in 2016. During that time, average demand reversed from growth of 1.7% to a negative 1.0%.
Am Law 100 firms, meanwhile, saw their average demand growth fluctuate between 2014 and 2016, depending on whether they raised or reduced their rate growth, respectively.
A copy of the Thomson Reuters Peer Monitor Special Bulletin, “Does Slower Rate Growth Increase Revenues?” can be downloaded here: http://legalexecutiveinstitute.com/peer-monitor-rate-growth/