Dive Brief:

• Roughly 40% of timekeepers at law firms did not increase the average rates they charged clients last year, according to a new report from Wolters Kluwer. This figure includes the 26.7% of timekeepers who saw no change in the average rate they charged across all clients, and the 13% of timekeepers who saw a decrease in the average rate they charged.
• Though legal professionals at Am Law 100 law firms experienced the highest average rate increase at 7.2%, the LegalVIEW Insights report said, 32% of timekeepers at those firms received no increase at all. Timekeepers refers to law firm partners, associates and paralegals.
• Overall, the mean increase among legal timekeepers who charged higher rates was 5.6% and the median increase was 1.9%. Rate increases in excess of 10% were obtained by about 21% of timekeepers, according to the analysis of the invoice data from users of Wolters Kluwer’s ELM Solutions.

Dive Insight:

The Wolters Kluwer report could offer hope to corporate legal departments hoping to reduce outside counsel spend, particularly in a period of economic uncertainty.

“Rate increases are not, as the defeatists would argue, always inevitable and always inevitably high, although they are more likely to be both in the case of a buyer with a lackadaisical approach to rate management,” wrote report author Nathan Cemenska, director of legal operations and industry insights at Wolters Kluwer’s ELM Solutions.

The report cautioned that the sizable percentage of timekeepers who saw their average rates stay the same or decline was probably not because those timekeepers lowered their actual rates. More likely, the timekeepers lost high-paying clients or took on lower-paying ones.

But the report said the information about the lawyers and paralegals who didn’t see their average rates rise is still important “because it shows that a good number of timekeepers are willing to work for less than what some of their current clients are paying them.”

“If you work in a corporate law department and Timekeeper Joe is charging you $600/hour but has other clients where he does the same or similar work for $500/hour, that raises questions about whether you need to consider Joe’s rate increase requests at all,” the report said. “In all probability, you could categorically deny any request from Joe, and he would continue working for you because he is still getting 20% more than what he has shown himself willing to settle for.”

The report said another way legal departments could secure quick wins on rate management is shrinking the amount of work they send to the largest law firms.

The 7.2% mean rate increase Am Law 100 timekeepers received raised their firms’ average hourly rate to $786. The median rate increase for those firms was 3.7%. 

Timekeepers at the Am Law second hundred experienced a 6.2% mean increase, which bumped their mean hourly rate to $496. Those firms saw a median rate increase of 1.9%.

Additionally, timekeepers at unranked firms experienced a mean rate increase of 3.4%, increasing those firms’ mean hourly rate to $444. The median rate stayed the same for unranked firms.

“The biggest, most elite law firms in the world clearly have more pricing power than smaller firms, and that is reflected in the rate increase numbers for 2022,” the report said. 

Legal departments could shrink the work they send to the largest firms by moving to down-market options, bringing work in-house or turning to alternative legal services providers, the report said. It also suggested in-house teams could try to negotiate rate freezes on their top legal matters that often go on for years.

The Wolters Kluwer report covered the period of July 2021 to June 2022. The LegalVIEW database on which the report is based includes more than $155 billion in invoice data.