Your law firms are under pressure. Although it’s unlikely to come up in conversation, they are more appreciative of your business than ever. The truth is that they will bend over backward to keep your work. So what do law firms know that they aren’t necessarily telling you?
What Your Law Firm’s Not Telling You
Client Demand is Softening
External legal spending has only seen a 1.1% CAGR since 2011—that’s seven (7) times slower than growth in internal spending. The use of law firms has become more strategic than ever. (BTI Legal Spending Benchmarks 2015). Clients who previously relied on outside counsel for the majority of key decisions have pulled most of that work in-house saving outside counsel for when specialized expertise is required or for work on a project-to-project basis. (Georgetown – 2016 Report on the State of the Legal Market) Additionally, clients are consolidating their work at fewer firms. When asked by Lexis-Nexis, 55% of clients interviewed have 80% of their work at 10 or fewer firms in 2015 (LexisNexis CounselLink 2015 Mid-Year Report).
Law Firms are Challenged by Overcapacity
Overcapacity and under-productivity are real problems diluting profitability and compromising too many law firms’ long-term health (Georgetown – 2016 Report on the State of the Legal Market).“A ‘buyer’s market’ for legal services is bringing increasing demands from clients, more nimble and leaner competitors and greater pressures for efficiency,” said Mike Abbott, vice president, Client Management & Global Thought Leadership, Thomson Reuters.
Making a Profit at the Firm is Hard
Firms know that price competition is a reality—94% of law firm leaders think it is here to stay. Just about the same amount of law firm leadership (93%) feels a focus on practice efficiency is a permanent trend. (AltmanWeil Flash Survey 2015). To attempt to grow or maintain profitability, law firms continue to raise their rates—in 2015 major metros saw rate increases in the high single digits: Boston +8.1%, Chicago +6.3%, Detroit +6.0% and San Francisco +5.0% (LexisNexis CounselLink 2015 Mid-Year Report).
So what does this mean your you and your team?
You hold the reigns and are in control. As always, relationships are important, but make sure your firms aren’t resting on their laurels. If you are unsure if you are getting best pricing, do a panel refresh to understand current pricing in the marketplace. If you are not getting the client service you need, have that conversation with your firm. Survey says: your firms will step-up with improved pricing and better service.
About the author – Kathy Heafey is President of BanyanRFP, a cloud-based RFP platform that helps companies control spend on legal services. She has over 20 years of management experience working with large brands such as Pillsbury, Green Giant and Progresso Soup. A proven leader in Cost Management and Continuous Improvement, she enabled over $20MM in annual cost-savings for General Mills. As both a consumer of professional services and a key partner with strategic sourcing at General Mills, she has a deep understanding of professional services procurement. For more information, visit www.BanyanRFP.com