I dropped the ball in 2015 and did not report on several key industry surveys. Of particular note is Altman Weil’s seventh annual Law Firms in Transition survey. To continue the 2013 (POST) and 2014 (POST) overviews, I thought it was important to post an overview of the 2015 survey, if only for comparison. So, eight months later, here is the May 2015 survey report.
For the first time in four year, Pricing slid in importance in the 2015 report. “Lawyer Staffing Strategies” and “Law Firm Growth” have been elevated ahead of “Pricing Strategies” even as the report connects the three in its overview:
Increases in law firm profitability are clearly linked to strategic changes in lawyer staffing, efficiency of legal service delivery and pricing approaches. … Those firms that have done more to in the areas of pricing, staffing and efficiency are outperforming those that have done less. We see a clear correlation.
For 2015, the report recommends seven areas for successfully “Managing the Future:”
- Clients must be the center of your strategy.
- Pricing is always a core issue.
- Overcapacity and under-productivity are real problems.
- Effectively planning the retirement of Baby Boomer partners is critical.
- Most firm leaders see the inevitable move toward fewer support staff.
- There is a dawning recognition of the power of ‘smart’ technology.
- Use your next retreat to focus on long-term competitive advantage.
Even with a decrease emphasis on Pricing, four of the top seven “permanent” trends — including number one — are all pricing-related:
- 1. More Price Competition: 94.4% (up from 93.8%)
- 3. More Commoditized Legal Work: 89.4% (up from 88.6%)
- 6. Competition from Non-Traditional Service Providers: 82.8% (up form 82.3%)
- 7. More Non-Hourly Billing: 81.3% (down from 81.9%)
- For the fourth year in a row, more than 90% of firms believe “more price competition” is a permanent trend.
- 31.1% of firms have “significantly changed its strategic approach to pricing strategy” (a slight jump from last year).
- For the second year in a row, the majority of large firms (250+ attys) are developing data on costs and training attorneys to talk about price, but there was a drop in the number of firms focused on identifying clients’ unique pricing preferences.
- 81.3% of firms report “more non-hourly billing” will be permanent trend (slightly down from last year).
- 93.3% of firms report using “non-hourly based billing” (same as last year, but down from peak of 96.2% in 2013).
- 100% of firms report at least 1% of total fees from “non-hourly based billing” (same as last two years).
- 47.6% of firms report more than 10% of total fees from “non-hourly based billing” (a significant jump from last year’s 41%).
- 42.6% of firms increased the amount of alternative fee revenue it collected (down from last year’s 49%).
- 68% of firms use non-hourly billing rates only when requested by clients (“reactive”)(a three-year low).
- 32% of firms were proactive about using AFAs, four percentage points above last year (still behind 2010’s 41%).
- Alternative deals’ profitability slid: 15.8% more profitable, 37.7% as profitable, 31.9% less profitable, 14.7% don’t know.
- “More profitable” AFAs remained constant after three-year rise: ’11 = 12%, ’12 = 14%, ’13 = 16%; ’14 = 16%; ’15 = 16%.
The survey was conducted in March/April 2015. Law firm leaders (i.e., managing partners and chairs) from 797 U.S. law firms (with more than 50 attorneys) participated in the study. Overall, 320 firms (38%) participated, including 45% of the AmLaw 200 and 47% of the NLJ 350.
Full report is available at:
LAW FIRMS IN TRANSITION 2015: AN ALTMAN WEIL FLASH SURVEY