Hi there,
Firm profits continue to swell, and clients — until now — have been left holding the bag.
But in-house teams are catching on to the ruse.
Like we heard recently from one of our PERSUIT clients:
“In the past, we’ve seen and expected big rate increases due to market conditions.
"But this year? I don’t really understand what’s behind these rate increases. Or how they can justify asking for so much!”
Here’s what we know.
Demand growth for legal services has stayed flat over the past decade, with corporate legal teams taking more work in-house.
Wells Fargo’s most recent report on lawyer pacing shows that lawyers have only logged an average of 1,538 billable hours in the first half of 2023 — 150 fewer hours than in the first half of 2021.
Yet firm revenues and profit per equity partner (PPE) have steadily increased nearly every year since the Great Recession — with only a slight blip in 2022 after record rate increases in 2021 that were too absurd to be replicated in an immediately proceeding year.
Just this month, firms like Cravath and Millbank have announced across-the-board (massive) pay increases.
And it has corporate teams wondering:
“Are yet more unjustified rate hikes around the corner, and what can we do about it?”
Rate hikes face a reckoning.
As firm rate increases grow faster than corporate budgets, corporate clients are looking elsewhere for solutions (consider the growth we’ve seen in ALSP usage across all industries on PERSUIT).
At the same time, GenAI has also become a catalyst for in-house teams to take a fresh look at their tech stack and improve efficiencies — and to demand the same from their firms, while more heavily scrutinising just exactly how their billable hours are being spent.
We’ve also seen in-house teams at our client organizations innovating with their firm panels to create better strategic partnerships and negotiate better value adds (ICYMI, you’ll want to catch the replay of our most recent webinar from PERSUIT's Legal Advisory: The Power of Firm Panels).
Of course, our PERSUIT team is also bullish on how improved transparency and data will help transform the rate negotiation process.
We’ll be discussing how next week as we host Sanofi’s head of legal procurement, Cintia LeLann, in our latest webinar: Take Control of Rate Hikes.
We hope to see you there.
In the meantime, I’d be interested in hearing from you:
What are your firms asking for this year?
And what are you going to do about it?
Cheers,
Jim
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