The article reports on how — in the face of inflation — many firms are going big with their rate increase requests this year.
How much are they raising rates?
According to law.com and the Wells Fargo Legal Specialty Group, firms are asking for an average of 7% to 8% increases this year.
That’s actually below what we’ve been hearing from some of our clients at PERSUIT.
I was chatting with a legal ops leader last week from a Fortune 500 legal team.
He's seeing average rate increases that are averaging well above 15%
“That’s just not realistic for us,” he said.
And so he’s doing what I did for so many years during my time as a partner.
He’s negotiating.
He and others at his company will send countless hours over the next few months negotiating rates with each partner firm.
It’s the same on the firm side — where partners and business development reps will waste an equal amount of time arguing for higher rates with their clients — all driven by this world that's measured by the billable hour.
If you hate this process as much as I do, let me say to you what I've said to hundreds of legal leaders since we started PERSUIT.
It doesn't have to be this way.
For years, the legal industry has talked about moving away from the hourly rate.
I get how it sounds. I was a partner in Big Law. Moving legal away from the billable hour seems impossible.
But as one GC brilliantly articulated to me a few weeks ago:
“I am not the slightest bit interested in how a law firm comes to the price of a product (i.e. legal services) they deliver. I care about value for the work provided (i.e. the outcome).
“I don’t calculate the value based on how many hours it took to get to that outcome. Just imagine if you had your house builder charge you by the hour.”
And that's right.
Service providers in most other industries charge for outcomes, not for the number of hours they spent on a particular task.
Charging based on value and outcomes gives firms in other industries the opportunity to innovate — to be more profitable (not less) than they would be if they charged by the hour.
This can be true in legal too.
So, this year, as you and your team fight through the pain of rate negotiation season, I want to invite you to imagine a different future.
Imagine this:
- What if you decided that 2022/2023 was the last time you’d invest this much energy and stress in rate negotiations?
- What if you told your firms that you didn’t care how long it took them to deliver a result? That you wanted to reward them for delivering value and outcomes rather than hours.
- What if firms learned what professional service providers in other industries have known for years? That value-based pricing is a path towards more profit — not less?
You may not have realized it, but the legal departments at some of the world’s biggest companies are already part of this movement.
You can be too.
I’ll put some resources in the P.S. below if you want to know more about the history of this change — and how you can be a part of it.
-Jim Delkousis
Founder and CEO
PERSUIT | www.persuit.com
P.S. Here are two recordings that will introduce you to a different way to run a legal team, including some best practices to help you get started:
