It's naïve to think law firms increase headline rates by 10% and that all clients just pay up
For certain clients, and certain practice areas this will be true - think the bet the company M&A or litigation work. This work is price-inelastic, there are high switching costs to another law firm, and very limited alternatives (ALSPs, flex-talent, Big 4 etc)
In the image below, this work is typically at the top of the pyramid - by volume there will be fewer of these matters, but by value it's certainly worth a firm increasing it's rates
At the bottom of the pyramid, we have services like residential conveyancing and off-the-shelf wills. Whilst there may be high volume here, demand is very sensitive to price, and a 10% increase in fees may well result in a drop in volume greater than 10% - with the result the firm is worse off for trying to increase rates
The challenge with this section is that, over time, as rates at the top end accelerate away, the volume at the bottom end starts to look like the poor relation.
And we've seen the consequence of this in the City, with many firms abandoning private client and resi-conveyancing (and indeed commercial property) work over the past 10 years or so
As rates at the top end continue to race away from the remainder of the pyramid, firms need to consider the longer term implications for the grey area in the middle
Can full service firms keep jettisoning unfashionable practice areas?
There are risks
A lot of that top end work can be frothy, cyclical, and subject to falling away as markets turn, the volume based practices provide financial stability through economic cycles
The volume based work also provides training opportunities for junior lawyers - you can't charge top dollar at the top end for a junior's first rodeo
Some will see the pyramid and think that AI will take all the volume work away
Maybe...
I think more likely are the ALSPs, flex-talent providers and Big Four
Whilst GCs and the press agitate over headline rate inflation at that top end, firms are really having to grapple with the structural implications in the grey middle of stretched rate cards and increased competition
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