Firms have raised rates by an average of 5.7% this year, with larger firms seeing even higher increases.
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Newsletter Update V5

Hi there,

 

Just when I think my same rant about billable hours is getting stale, I read something like this, (taken from the preface of Thomson Reuter's recently released rate review report for firms):  

 

"For most of the past decade, the growth in hourly rates for attorney time has been one of the key drivers of the growth of law firm profitability. In fact, when applying the classic RULES framework...which stands for Rates, Utilization, Leverage, Expenses, and Speed of billing — it is rates, and more broadly their impact on driving revenue, that has been the most highly functional lever for law firms to positively influence their profit outlook."

 

In other words, law firm profitability still mostly relies on raising rates (stunner, I know 🤦‍♂️). 

 

What else does the report say?

 

Year-over-year rate increase growth is returning to pre-Global Financial Crisis levels. Inflation being the biggest justification. 

 

Inflation huh? 🤔

 

Now consider that there has been flat to little growth in demand for firm services — less than 1% growth for firms overall. Yet the first half of 2023, revenue potential as measured by fees worked grew 6.7%. 

 

How did firms accomplish this not-so-shabby feat? 

 

In large part, because of a 5.7% increase in rates over this same six-month period.

 

The statistics for the Am Law 100 are even more stark — despite negative demand growth, they’ve achieved a 6.9% increase in fees worked in the first half of 2023, thanks mostly to a 7.3% increase in rates over this same period.

 

It’s inevitable that firms will continue to see hours and demand shrink as Gen AI-enabled efficiencies become commonplace. 

 

In response, some firms will continue to pull the same tiresome lever — raising annual rates — to prop up their growth. 

 

Still, others are taking advantage of Gen AI and other technological innovations to become more profitable by finding ways to innovate and change their business model. 

 

How? 

 

I love how HSBC’s Head of Legal Market Engagement, Chris Grant, explained in a recent webinar we hosted on how AI is enabling transformation in the legal industry.

 

As Chris shared, alternative legal service providers and some firms are already finding ways to use AI to deliver results more quickly and efficiently, which then allows them to pick up more work and be more profitable.

 

And, Chris adds: 


“Just because you put AI in place doesn’t mean I won’t pay the same price as I was paying before because you’re doing it more quickly and faster. In fact, I might pay a premium because you’re doing it a little bit quicker. But that conversation won’t be had if we’re talking about the hourly rate.”

AI efficiencies arent the death of firm profitability

There you have it folks. 

 

Gen AI tools hold the opportunity for firms to become massively more profitable as they become more efficient. 

 

But to get there, we must first move away from the broken billable hours model. 

 

While hourly rates might not soon (or ever) entirely go away, annual rate negotiations are just one of the many opportunities for in-house teams to ask their firms to think differently about how they are providing value.  

 

If you, as an in-house legal department, haven't yet mapped a plan for how to do this, you’ll be missing out on a tremendous opportunity to realize more value from your firm relationships in crossing the technology chasm together. 

 

Worst case, you will essentially be left "holding the bag" for your firms.

 

So in-house, what’s it gonna be? 

 

 

 

Cheers,

 

Jim Delkousis

Founder and CEO

PERSUIT

 

 

 

P.S. Also in today's edition of The PERSUIT:

  • If you haven’t already started the conversation with your firms about AI, make sure you’re armed with our latest RFI template.
  • You can also catch our upcoming webinar on Unlocking Tech Success Together: The Evolving Relationship Between GCs & Their Legal Ops Team.

 

jim

Jim Delkousis

Founder and CEO  

PERSUIT

LinkedIn

INNOVATION IN LEGAL

PERSUIT RFI Template: Impact of AI on Outside Counsel Relationships

AI RFI Template

Artificial Intelligence (AI) and more specifically Large Language Models (LLM) and Generative AI (GenAI) are rapidly transforming the legal industry.

 

But as the ChatGPT hype begins to fade, in-house teams are finding that there’s a lot of work to leverage the promised “magic” that lies behind this (not so) new technology. 

 

This RFI template provides a framework for initiating conversations with your law firms around their strategy and utilization of AI tools, specifically Generative AI and Large Language Models.

 

Download: RFI Template — Impact of AI on Outside Counsel Relationships

Untitled design (7)

Maui Gevero

Senior Manager, Legal Advisory

PERSUIT

LinkedIn

WEBINAR

Unlocking Tech Success Together: The Evolving Relationship Between GCs & Their Legal Ops Team

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Leveraging technology is table stakes for today’s General Counsels.

 

But driving change management around that use is no easy lift. Legal operations plays an increasingly pivotal role in helping in-house teams successfully do it. In this panel discussion, we’ll learn from GCs and legal operations professionals who've learned how to make this special relationship a success.

 

Join PERSUIT's Cynthia Lareine, Legal Director, Executive Advocacy, to learn how as she hosts an all-star panel of GC and Legal Ops leaders, including:

  • Caitlin St Vincent Welch, Director of Legal Operations, Zurich Insurance Company 
  • Jeff Langlands, GC, Corporate Digital, and Networks, BT Group
  • Chris McCloy, Senior VP, Outside Counsel Management, Citi

Learn more about what effective collaboration between general counsels and legal operations really looks like, the best tactics for driving change management around the use of technology for in-house teams, and how to find and evaluate the tech solutions that are most helpful, versus those that just add to the noise.

 

Regsiter here: Unlocking Tech Success Together: The Evolving Relationship Between GCs & Their Legal Ops Teams

UPCOMING EVENTS

Where's PERSUIT? 

Here's where you can find us this month:

  • Innovative Legal Leaders Roundtable: New York, October 16 — By invitation
  • WEBINAR: Unlocking Tech Success Together — The Evolving Relationship Between GCs & Their Legal Ops Team, October 19
  • Legal Tech Innovation Roundtable: Charlotte, NC, October 25 — By invitation
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