Hi there,
Cost pressure is real in legal right now.
When I see big companies reducing staff in their legal departments, it tells me one thing:
Companies are looking to every department to reduce costs right now — and legal will not be an exception.
Just before Christmas, I spoke with the head of legal ops at a Fortune 100 company.
His legal department had been tasked with reducing their legal budget (internal and external legal costs combined) by a whopping 20% for 2023.
And the first round of layoffs had begun. It was a sobering discussion.
There will be some trickle-down effect of that pressure impacting law firms as well.
Just this week, I read an article on AboveTheLaw about layoffs happening in Big Law as firms brace for a drop in demand.
But I don’t think I have ever seen a slowdown or recession impact law firms to anywhere near the degree that they impact in-house legal departments.
Even in the Global Financial Crisis of 2008, which was a biggie, the law firm business model — anchored to the billable hour — is incredibly resilient. I’ve always said, don’t bet against it.
If you’re in an in-house leadership position, let me say this:
Cutting staff is not the only way to lower costs in legal.
For years, in-house teams have talked about using alternative fee arrangements as a way to control costs.
The challenge has always been execution.
If you’ve never used one, it can be a real challenge to design AFAs that give you the results you need while also preserving your firm relationships.
“AFAs can be a challenge” does not mean “AFAs aren’t worth it,” however.
Not by a long shot.
Let me share some data with you…
Since the launch of PERSUIT, we’ve seen over $1 billion in work awarded through our platform.
Over 70% of those awards were made using an AFA. Even better when it’s a competitive AFA, so that you let the market determine what the true price of the service is.
As of this week, for all matters on our platform all-time:
Matters awarded using an AFA on PERSUIT have seen an average 21% cost savings across all matter types.
That’s the polar opposite to what’s happening in the rest of the legal market right now.
As we start 2023, firms that rely on the billable hour are asking for — and getting — 5% to 10% increases in their rates this year — justified largely by reference to inflation.
No matter how many times I have seen that in my career, it still blows my mind.
As a CEO, I know that sometimes you are forced to bring down costs — one way or another.
And I also know…
Layoffs are not the only way to bring down costs.
Sometimes it just takes the courage to challenge the “way you’ve always done things.”
As I’ve said before and will continue to say:
There is no such thing as a legal matter that’s too complex or too unpredictable for an AFA.
It’s simply a lack of experience that keeps people from believing AFAs are an option on any kind of matter.
It takes knowing:
✅ How to break a matter into phases
✅ How to scope each phase of work a matter up front
✅ What you’ll do if things change unexpectedly — a material deviation clause
✅ Enforcing the terms of the AFA for the duration of the matter.
There is no matter that can’t be managed this way.
Our team knows, because we see countless complex situations each week being managed using AFAs.
And we also see the major financial savings AFAs can create in the process.
Have a litigation matter that would have cost $5 million without an AFA and $4 million with one?
There’s 6+ in-house jobs saved just there. We see it every day on PERSUIT.
Let me leave you with this thought. A choice between managing external legal spend or sacrificing in-house jobs. Which is the right choice to make?
I think the answer is clear. I hope you do too.
