Infographic Friday: Billing Rates Up 4%, But So Are Discounts

Note:  The following is a guest post by Larry Bodine; the infographic, as customary with our Friday Share series, follows below. 

Law firm billing rates are up in all firm sizes – especially at “top of the market” megafirms – but then, so are discounts, according to a pair of influential surveys of the legal profession.

Fees at megafims have reached stratospheric levels, such as $1,500 per hour for a BigLaw senior partner handling bet-the-company matters, or an average of $724 per hour for a senior partner at a firm with 400+ lawyers, according to the new Billing Rate Reference 2014 by Law360 and BTI Consulting Group Inc. (available for $2,400).

Law firms surveyed report a 4% increase in overall billing rates for 2014, according to the equally new 2014 Law Firms in Transition Survey by Altman Weil (available free). However anywhere from 21% to 30% of all legal fees are discounted, according to the report.

Chart by Law360/BTI Consulting

How do megafirms justify their astronomical rates? By being able to muster a small army of short notice and consolidating a corporation’s legal work into one firm, according to BTI President Michael Rynowecer.

The highest fees – an average of $829 per hour – are commanded by senior mergers and acquisitions attorneys and transaction lawyers at the biggest firms, according to Law360/BTI. The average litigation billing rate for a partner at a megafirm is $745.

Chart by Law360/BTI Consulting

Driving clients away to smaller law firms

What the reports don’t say is that very few lawyers actually charge $1,500. But the effect of the spectacular rates is driving clients away from the largest 50 law firms, according to research by LexisNexis Counsellink. Over the last three years the relative portion of legal work given to the largest, full-service law firms has declined from 26% of legal fees billed to only 20%. The decline of the top 50 law firms in the U.S. with more than 750 lawyers is quantified by recent LexisNexis/Counsellink research, the Enterprise Legal Management Trends Report.

The “large enough” law firms with 201-500 lawyers — with rates that are 30% less — have increased their share of corporate legal work. The shift in legal work is far more dramatic when it comes to high-fee litigation matters — the same cases for which BigLaw litigators are asking $1,500 per hour.

Asked about the $1,000+ fees, legal billing expert Judie Bronsther of New York said, “nice work if you can get it.” Bronsther is an attorney and President Accountability Services, a national legal auditing and cost control specialist.

“Sophisticated clients are saying I don’t need an Amlaw 50 firm. I can go outside of New York and go to Pittsburgh and find a lawyer who graduated at the top of their class at Harvard and pay 40% to 50% less,” Bronsther said.

Also undermining the sky-high rates is the rise of overseas virtual lawyers who will have partner-level experience but charge $150 to $200 per hour, according to Law360. Called “legal process servers,” the virtual lawyers collected more than $350 million in fees in 2011.

“The big law firms are ill-advised to be charging these rates, because more work is being shifted to the middle range of firms,” Bronsther said. “They are basically biting themselves in the foot.”

Infographic:  What Clients Really Pay Law Firms

Infographic by Law360/BTI Consulting

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Larry Bodine is a lawyer, journalist and marketer who speaks and writes frequently about law firm marketing. Currently he is the publisher of the National Trial Lawyers and is the former Editor in Chief of Lawyers.com. Readers can follow @Larrybodine on Twitter, on Google+ and on LinkedIn, where he moderates several marketing groups.

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