I recently read the 2016 Report On The State Of The Legal Market by Georgetown Law and Peer Monitor. I was struck by the clarity of the message being sent by clients, and equally struck by how law firms seem not to hear it. Consider these messages.
- More work is going places other than law firms.
It is not as if the amount of work inside law departments is less or even the same. The amount of work is greater than ever and increasing every year. Where is that work going? Certainly not to law firms.
2. Law Firms keep raising rates. Clients refuse to keep paying.
Notice how the gap between standard rates, billed rates and collected rates is increasing. That is a reflection on client pressure to reduce spend and their refusal to “go along” with regular rate increases. This message is made crystal clear here:
Law firms are collecting a decreasing percentage of their standard rates every year. What message to they believe is being delivered? The fact that the percentage of billed v. standard is declining so precipitously means law firms know that clients won’t tolerate being billed higher amounts, but the continual rate of decline means firms are not addressing the fundamental problem or are doing so ineffectually.
At the same time, client satisfaction with law firms’ client service is declining. From a recent post on the Mad Clientist (BTI Consulting):
56% of corporate counsel issued RFPs for law firms in 2015, up from 45% in 2014. We now face a majority of clients using RFPs to hire new law firms. The increase is due directly to the rock-like drop in client service performance clients are experiencing.
What does it all mean?
It means the greatest revenue opportunity for law firms is not raising rates. The greatest opportunity is increasing realization rates. Perhaps the road to doing so is by improving client service. The combined data certainly suggest that clients are delivering a clear message.
I wonder if law firms need to have their institutional hearing checked.