Survey concludes law firms will raise billing rates in 2010, on average 3.2%

The newly released Altman Weil Flash Survey on 2010 Billing Rates reports that U.S. law firms project an average overall increase in rates of 3.2 percent for 2010. Most law firms will make rate change decisions based on specific variables including timekeeper class, practice, client or individual timekeeper. "Although these results may seem to contradict some expectations for rate freezes in 2010, this is a relatively conservative rate increase by law firms that are struggling to balance their own business perspective with the needs of their clients." said Altman Weil principal Tom Clay. "Most firms are making careful, considered increases -- often client by client or lawyer by lawyer -- unlike prior years when across the board increases were typical. "Law firms know that this is a buyers market." Conducted in November 2009, the survey polled 688 U.S. law firms with 50 or more lawyers. Completed surveys were received from 288 firms (a 42 percent response rate), including 45 percent of the 250 largest U.S. law firms. 2010 billing rates On average for all law firms, billing rates will increase 3.2 percent in 2010 according to the survey. Larger firms anticipate a slightly higher average increase than smaller firms, with 1,000-plus lawyer firms reporting an average 4 percent increase, while firms with 50-99 lawyers will raise rates just 3 percent. In firms that plan an across-the-board increase, the average rate change will be 4.1 percent. Less than 1 percent of all law firms surveyed plan to decrease rates in 2010, but 8.5 percent will make no increase. In addition, 7.8 percent of law firms will increase rates 1 percent; 19.9 percent plan a 2 percent increase; 21.6 percent will increase rates by 3 percent; 14.9 percent will up rates 4 percent; 19.9 percent anticipate a 5 percent increase; 2.1 percent of firms will raise rates 6 percent; and 4.6 percent of law firms will increase their billing rates by 7 percent or more. "In 2009, law firms faced a constant stream of requests from clients for discounts, and that will not change in 2010. The reality is that most rates are negotiable," observed Clay. The decision-making process Law firms were asked to indicate the primary method they would use to adjust billing rates for 2010. Thirty percent of law firms indicated they would adjust their rates by timekeeper class. Other decision-making variables reported were practice or specialty (18.3 percent), client (12.8 percent) and individual timekeeper (11.1 percent). An additional 13.1 percent of law firms will make an across-the-board decision on their 2010 billing rates. "A law firm that takes a more granular approach to billing rate decisions will be in a better position to demonstrate a rationale for the increases that's linked to value," commented Clay. "Because their clients will be pushing back on rate increases, they will need to have a compelling story to tell." Rate changes by timekeeper class Firms that made their billing rate decision based on timekeeper class were asked to estimate their rate change within ranges for equity partners, non-equity partners, associates, counsel, contract lawyers and paralegals. The largest increase, according to the survey, will be in associate billing rates with 45.5 percent of firms making an increase in the 4 percent-6 percent range and 11.4 percent making an increase of 7 percent or more. This was true for all firm size categories except law firms with 1,000 or more lawyers. "Many firms feel the need to cover their associate costs with rate increases," explains Clay. "And because associate rates are lower, increases there may attract less comment from clients than increases at the partner level." What are they thinking? The survey asked for comments from participating law firms regarding 2010 billing rates. Most firms acknowledged the pressure they are under from clients to hold the line on billing rates. But they also expressed a number of reasons why rate increases were necessary or justified in their firms, including: the need to raise rates after a freeze of up to 2 years, increases for specific practices that are under-priced compared to the market, and increases for associates and junior partners to reflect their increased experience. Some firms also commented on the move toward alternative fees that is making hourly rates increasingly irrelevant. Those firms are looking to create greater efficiencies in service delivery as a way to improve their bottom line. As one firm noted: "The key to 2010 and beyond will be to manage the margins." The full survey The complete survey, including selected comments from participants, is available to download online at www.altmanweil.com/2010BillingRates. Published: Thu, Dec 3, 2009

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