During 2015, law firms continued to raise their standard rates, though by a fairly modest 2.7 percent. This is reflected in Chart 5 below that shows rate growth across the market from Q1 2005 through November 2015. Although, as can be seen on the chart, the pace of rate increases has clearly slowed since the pre-recession period before 2008 (when rate increases of 6 percent a year were not uncommon), client pushback to such increases has continued to mount. This has resulted in plummeting realization rates over the same period, as indicated in Chart 6.

To some extent, despite sluggish demand growth and falling realization rates, law firms have been able to maintain their profitability levels over the past few years by their annual rate increases, even despite growing client resistance. Over the last couple of years, however, the rate of growth in worked rates – i.e., the rates actually charged for work performed – has slowed considerably. Indeed, in October 2015, worked rate growth hit its lowest annualized level (2.5 percent) since February 2011. At the same time, as indicated in Chart 6 above, realization has continued to move downwards, hitting an all-time low in October 2015 as well. This combination has resulted in a formidable one-two punch as firms have seen their rate increases limited at the same time that their realization rates are dropping. As shown in Chart 7 below, that has resulted in a sharp slowdown in the growth of collected rates across the market.

Read original article


Tags: