Size Does Count
The March 2007 edition of the Law Office Management and Administration Report (subscription required) has an article in it reporting a 7.2% increase in partner billing rates in law firms in the USA in 2006/7, and an 8.5% increase in billable hours. That's ahead of inflation generally, but hardly enough to compensate for skyrocketing associate compensation and operating expenses.
What is particularly noteworthy in the results of the 2006-2007 Law Firm Management Survey that the article reports on, is how billing rates at all fee earner levels vary according to firm size. Size, it seems, certainly does count. For a full size version of the image above, illustrating how much better the larger firms did than their smaller compatriots, click here. One of the respondents in the survey (the Administrator of an Arkansas law firm) said:
"Increasing revenues to offset escalating benefit costs while clients are concurrently negotiating reduced/blended rates and refusing to pay for traditional in-house expenses" is the profession's greatest challenge.
The response to this, in more and more firms, is clearly (and at last) to move away from hourly rates. Firms reported earning 54.8% of their gross revenues from hourly billing this year; down from 84% in the previous survey, last year. More than three times as many of the large firms (151 + lawyers) are now using flat fee structures, as were last year.
Fully 80% of large firms reported that they withhold compensation from partners that are delinquent in submitting timesheets timeously, compared to only 20% of mid-size firms (21 - 50 lawyers.)
Could it be (at least in part) that the larger firms are simply reaping the benefits of taking the plunge of moving away from hourly rates, and being more disciplined about translating work done into cash, when compared to smaller firms that refuse to seize those nettles?
It certainly looks like it!
A copy of the report itself can be ordered here.
Has anybody else seen anything about the huge downturn in 'billing by the hour' that this this survey reports? I can't find much anecdotal evidence in the market to back it up and most people I ask about the statistic are downright unbelieving. Help?