In addition to establishing metrics for demonstrating, for instance, who in the firm does what and how for project management or other purposes, there are metrics out there that track what individual firms charge for various units of work, so that inside counsel can compare value among firms in a more finely calibrated way.
A survey by CT TyMetrix Inc. and The Corporate Executive Board, The Real Rate Report, culled through $4.1 billion invoiced by over 3,500 law firms and 90,000 individual billers in 51 metropolitan areas over three years (2007-2009) to companies ranging in size from 1-1,900+ attorneys, and in 16 industries, including energy, entertainment, finance, insurance, healthcare, manufacturing, pharmaceutical, retail and technology. Key topics they were looking at include:
- Actual rates charged to corporate clients by law firms by geography, work and matter type, matter phase, and timekeeper (partner, associate and paralegal) role, practice area and experience level.
- Law firm staffing trends, including staffing profiles for different matter types, timekeeper billing patterns, and a breakdown of how billing has changed in the past three years.
- Portraits of typical corporate legal matters across law firms by type, length and cost of specific matter phases, and timelines from service to billing.
The results? First, apparently lawyers nationwide have variable rates for the same work. The survey found that 85% of lawyers change their rates for the same work depending on the client, with median variations in some practice areas averaging as high as 17+%.
So in case you’ve been wondering why clients keep going next door looking for a better deal, they evidently have good reason to. Not only did the survey find that firms charge different rates to different clients, it found that the longer clients stay with a law firm, the more likely they’ll pay more than newer clients coming through the door. Yes, you read that right. We don’t seem to offer frequent flyer programs.
According to Steven Williams, a Corporate Executive Board managing director, "jumps in partners’ and associates’ rates outpaced increases at four-year private colleges, blue- and white-collar hourly wages, and producer and housing price indexes since 2000," and experience has little correlation with rates. Over the three year period of the survey, nearly one in 5 lawyers increased their hourly rate by $100 or more, with percentage increases for associate hourly rates rising the most.
What is more important to rates than expertise or experience is where the lawyer works and how big the firm is. A big city firm–located in Chicago, LA, NYC, San Francisco or Washington, DC–adds an average of $131 to an hourly rate, although firms in the metro South racked up the largest increases.
New York City law firm partners charge the most in the US at about $700 an hour, with Washington, DC partners coming in at a close second at $600 an hour. DC lawyers raised their rates an average of 10.5% between 2007 and 2009. In comparison, lawyers in Detroit only raised their rates 2%, the least in the country, and Dallas invoices rose the highest, at 21.9%.
And size matters: for every 100 lawyers in a firm, clients pay another $10 an hour for the associates and about $100 more per hour for a partner.
Apart from having this more global information, one wonders how long it could possibly take companies to assemble and process this type of information in their increasingly sophisticated proprietary databases, if they have not already done so.
What do your rates say about your firm? Do you understand your rate structure? Who has the authority and for what reason to vary rates? Are your rates insensitive or even downright greedy when it comes to the work of your most loyal clients?
Clients are going to compare rates of different firms for similar work and make a value judgment–where are we getting the most bang for our buck?
One interesting side effect of this particular metrification may turn out to be that it puts firms in the position of claiming that their hourly rates are not really indicative of the value of their work–contrary to the last few decades of billing babbling. That the rates are simply a revenue metric determined by the firm to make sure they cover their costs and produce a profit.
Are you looking forward to that conversation?