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How to increase effective rates when current clients won't budge

James Markham

In this, they highlighted around a third of firms experiencing increased write offs and discounting in 2024, with three quarters of firms expecting this to increase further in 2025


This strikes me as entirely consistent with the picture painted within the ONS data of a significant softening in UK legal services price inflation to around 4% compared to the same quarter in the previous year


Taken together, it seems to me that firms are running out of road with an approach of adding x% to standard rates each year and hoping some of it sticks


The increased discounting in BigHand's report suggests that either (a) clients aren't buying this, and/or (b) law firm partners aren't convinced themselves that they can secure those higher rates


A 'Doom Loop' (to pinch BigHand's phrase!) where increases in standard rates are offset and eroded by discounting and write offs


But what can law firms practically do to address this?


There's real opportunity is in actively managing the client base, in two key ways:


(1) For clients that are now effectively priced out of the work, aren't appropriately profitable and are unwilling to absorb further rate increases - firms should consider walking away


Be that declining to re-tender, subcontracting out or actively migrating clients to another firm - this can be a sensible way to free up fee earner capacity


Appreciate that many will wince at this, but it is a better result than letting the client relationship suffer through neglect and over-delegation trying to clawback profitability for a client that fundamentally does not value you


It also sets the stage for...


(2) Actively poaching clients that 5 years ago you wouldn't have had a chance with


Big Law, in the round, has had a good run in recent years of increasing effective rates. But this also means that they are notably more expensive for clients and there is a wider gap now than then, between what Big Law and mid-market firms charge


Clients are shopping around and whilst your current client base may be wincing at your rates, there are clients out there who would happy to pay them (and then some!)


The image below illustrates this with familiar Magic/Silver Circle etc terminology - although note this is an over-simplification


Who you should be poaching from is likely to vary by practice group, rather than at the firm-wide level presented here


This is a more sophisticated approach to achieving rate growth, and it needs to be informed by data on rates and profitability at a client and matter level


But my clear view is that firms are running out of road on adding x% to standard rates and seeing what sticks


I also think we're going to see client churn increase, so the question for firms is - do you want to react, or proactively manage this?




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