Released on September 1, 2010, CT TyMetrix’s Real Rate Report, which is based on empirical data “gathered from $4.1 billion in invoicing generated by over 3,500 law firm and 90,000 individual billers over three years (2007-2009),” provides unique insight on the billing practices of law firms around the country. This report demonstrates that it may not necessarily be the skills set or experience of an attorney that drives his or her billable rate. Given that the 92-page report costs $4,500, a cost-effective way to learn what’s in the report is to review the September issue of The American Lawyer.
As detailed in the article, “legal bills increased at rates that exceeded inflation, in-house lawyers who spent more at a particular law firm were not getting any discounts, and partner status added nearly $100 on average to a lawyer’s rate regardless of experience.” What was even more interesting was the report’s finding that 85% of lawyers charge clients different rates for the same work and the “location of the biller and the size of the biller’s firm – not the biller’s experience – are the variables that most influence how much a client will pay.”
Although geographic location obviously impacts law firm and employee living expenses, clients may perceive no real justification for paying more qualified lawyers in mid-sized suburban firms less pay simply because of their firm size and location. It also does not appear to make sense to charge $100 more an hour simply because of a change in ownership rights. What if the associate was made partner largely on the basis of being a great rainmaker? How does that justify being a higher-priced M&A lawyer?
When it comes to the business of law, if law firms are going to continue to tie their collective hitches to the billable hour, they need to do a better job of meshing their actual expenses with their hourly fees and communicating their results to clients. If there is an expense associated with tapping into a large New York City law firm, i.e., higher rents, increased costs of hiring, etc., firms need to communicate those additional costs. Although doing that might make it more difficult to later reduce fees by 30% when in-house counsel balks on a given bill, it will end up leading to more consistency and a better relationship with those who actually pay the bills.
By blanketly adding additional dollars to a billable rate without spelling out exactly why the rates are at that level, law firms are missing a great marketing opportunity. The more successful manufacturers routinely lay bare their component expenses in order to close large orders. In other words, widgets should be no different from legal briefs when it comes to transparency of expense.
Here are some other interesting findings from the report (as listed in the American Lawyer article):