Lawyers Should Raise Their Rates
At least that's what the numbers say.
The Clio Legal Trends Report provides a wealth of insights every year. Built by combining attorney survey results with real, fully anonymized usage data from Clio users, the report manages to provide a more complete picture of the legal profession than surveys alone.
Data doesn’t lie.
Well, data can and does lie all the time, but usage data doesn’t lie and that’s the point here.
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And one of the most interesting stories told by the data is that lawyers should be charging more these days.
That spike in CPI reflecting the inflation outpaces the rise in fees, prompting the authors of the report to recommend:
As costs increase, most firms are likely seeing increases in overhead, which will create challenges for those that haven’t increased revenue, or for anyone that sees demand fall in the coming months and years. One way to address inflation is to adjust rates accordingly. Given the current gap in rates relative to inflation, industry-wide data suggests the average lawyer could increase rates by 3% to keep up with recent changes in the CPI relative to 2019.5.
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This all comes back to how much one views the CPI increase as a transitory event trickling down from a combination of COVID supply chain issues and Putin. If the rise in the price of consumer goods is lasting and making an impact on lawyer overhead, then bumping rates makes a lot of sense.
But what if it’s not? Paying more for canned goods doesn’t necessarily mean inflation is eating into a firm’s bottom line. Especially if firms downsize their physical footprint in the post-pandemic world.
How this shakes out will say a lot about the next couple of years in this industry.
Not that firms necessarily need to raise rates to bring in significantly more cash. Improvements to utilization and collection are already making big improvements for firms. Utilization, the percentage of a workday put toward billable hours, is up 5% since 2016. That may not sound like much but it adds up. “Put another way, for a lawyer with an hourly rate of $300, this change represents an additional $12,000 in annual revenue—all from completing just a few more minutes of billable work each day,” the report explains.
And that’s not all firms can do.
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There is still lots of work that law firms can do to raise these KPIs. Currently, the average law firm collects only $748 for every $1,000 of billable work. This means these firms could collect up to 34% more revenue by optimizing their realization and collection rates. This is a massive opportunity for law firms to capitalize on.
There may be economic headwinds, but lawyers seem to have a lot of options to keep themselves on track.
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.
