Header graphic for print
In Search of Perfect Client Service Why lawyers don't seem to get it

Increasing rates, decreasing realization? Are you getting the point?

Posted in Commentary

Thomsom Reuters’ report on the latest Hildebrandt Peer Monitor Index contains several interesting findings.  Here is the one I thought was the most interesting:

Billing rates were also up — 3.5 percent from a year ago. But that increase is marginalized by the fact that firms’ "realized rate" — the rate they are actually paid by the client — reached an all-time low this quarter. Net collected realizations fell slightly, to 85.4 percent, which also represents an all-time low.

Firms increased their rates and clients responded by paying less. This finding reflects a fundamental disconnect between firms and their clients.  Clients obviously do not believe they are getting fair value for the fees charged.  Increasing rates is not going to change that view: indeed, continued price increases will only  exacerbate the problem.

Firms should care more about the realization rate than the amount charged, and the road to greater revenue is increasing the realization rate.  How do you think clients would respond if firms announced they were holding their rates flat or, gasp, decreasing them?  If firms approached their clients and had a discussion that began with the expressed willingness to decrease rates provided the client worked with them on realization, I believe most clients would happily engage in that discussion.

But whatever firms do, simply doing what they used to do (increasing rates) is a fool’s errand.