CounselLink, a legal cost management company, just released a legal fee trend report based on an analysis of law firm billings processed by them on behalf of their clients. CounselLink clients are normally substantial purchasers of legal services. What is unique about this analysis is that CounselLink is not relying on survey data from respondents, which is often unreliable. In this study, CounselLink staff analyzed data from a pool representing $10 billion in actual legal bills, 2 million separate invoices and 300,000 unique matters over a four year period to support their findings. Clearly, meaningful conclusions may be drawn from this data set.
While CounselLink chose to focus on the shift in legal demand among the larger firms, there is plenty of information in the report that is applicable to small to mid-sized firms (50 or less lawyers).
Here are some of the highlights applicable to small and mid-sized firms:
- For the last four years, firms with 50 or fewer lawyers have consistently accounted for 30% ($3 Billion) of the total billings processed by CounseLink.
- Small to mid-sized firms represent the single largest group receiving work in the study. In fact, the gap between firms larger than 50 lawyers has actually widened in the most recent 12 month period ending with June 30, 2013.
- Movement in demand is much more pronounced among the larger groups, with the small and mid-sized firms remaining constant.
- Firms with 51-200 lawyers are stable or stuck at roughly 10% of the overall demand.
- Small to mid-sized firms are able to attract lager cases, which the study defines as billings exceeding $1M on a single case, albeit to a lesser extent (10%+-) than larger firms (90%). It should be noted that the trend for larger cases is favoring the 201-500 lawyer firms with a steep upward climb (22% to 41%) beginning in 2011 and continuing to the present day. While some of this work likely came from the small to mid-sized group, which has been trending down since 2011, the rate of decline is not as steep as the other groups losing work to the 201-500 lawyer firms. It appears that the firms in the 201-500 lawyer range have found a way to match their capability with their price and it seems to be working for them in the large case market.
- The report provides an analysis of the buying habits of clients that seek to reduce or the limit the number of firms that they use. They separate these clients into two groups that include Moderately Consolidated buyers and Highly Consolidated buyers. Small and mid-sized firms perform much better with the Moderately Consolidated buyers and reap about 43% of all billings for legal services compared to only 27% of billings in Highly Consolidated buyers. It should be noted that in both of these buyer groups, smaller firms receive more work than any other single group of firms.
- Small to mid-sized firms are more likely to offer alternative fee agreements (AFA), but only 8% of their total fee billings are actually on an AFA basis. Hourly billing still remains the mainstream billing method.
- The report also provides some interesting billing rate data. For example, the median hourly partner billing rate for Insurance Defense work came in at $170. The median hourly partner billing rate for General Litigation and Labor and Employment came in at $340 and $392 respectively.
- Annual billing rate growth for litigation services is growing at pace of less than 2%, with General Litigation billing rate growth at 2%. Annual Labor and Employment billing rate growth is better at 2.5% for the four year period but has pulled back to under 2% in the most recent year. Intellectual property, Tax, M&A and Finance, Loans and Investments, are all growing in excess of 2.5% annually, with better results in the most recent year. Full rate information is included in the report.
Small firms are competing very well in the large buyer market, and while their share of the total billings is not growing, it is not eroding either. Small and mid-sized firms fill an important role in providing legal services to volume purchasers. While it is true that the number of small and mid-sized firms competing for a share of this market are abundant, it is also true that many of them do not or cannot compete in this market. Further, many of these firms are growing weary of the typical large purchaser's ever increasing service level demands and pricing constraints, which only means opportunity for those firms that are properly structured and appropriately motivated.
I believe it is worth the time to download the full report (link provided) and read it for yourself. This information is unique and based on hard data independent of respondent quality.