February 5, 2020
2019 in Review
2019 was a good year for the legal industry, according to a recent report from Citi Private Bank's Law Firm Group and Hildebrandt Consulting LLC titled, "2020 Client Advisory.” While 2019 was not as strong as 2018 revenues were in line with other post-recession years. Billing rates were the main driver of revenue growth in 2019, increasing by 4.7 percent. “By contrast, demand grew by just 0.9 percent—a far lower figure than seen in 2018. Firms told us that, while they remained busy across both transactional and litigation practices, it was challenging to deliver growth comparable to that achieved in 2018. More positively, demand growth accelerated as 2019 progressed,” noted the report.
A lengthening of the collection cycle, which continued a trend from previous post-recession years, was a significant drag on revenue growth. By late in the year the inventory of uncollected bills had risen by 6.7 percent. “One of the drivers of this trend was a 4.5 percent increase in accounts receivables—largely caused by clients delaying payment of their bills. Another driver was an increase in unbilled time, which rose by 9.1 percent,” according to the report.
As the year advanced there was some easing of firms’ expense pressure, particularly, as the mid–2018 associate salary increases faded. Expenses rose by 4.7 percent, moderating considerably from the start of the year. “That said, a 2 percent increase in total lawyer headcount caused lawyer compensation costs to rise by 5.3 percent. Most of this headcount increase came from growth in salaried lawyers rather than in equity partners, which firms continue to manage closely… Meanwhile, operating expenses rose by 4.3 percent, largely driven by technology, professional staff and real estate–related costs,” said the report.
Am Law 50 firms saw weak demand growth of just 0.8 percent, while other Am Law segments saw better demand performance. “The best performing Am Law 200 segment were Am Law 51–100 firms, which reported a 1.8 percent rise in demand. Also beating the Am Law 50 firms were the Am Law Second Hundred, which reported demand growth of 0.9 percent. The demand environment was less positive for niche firms—practices that fall outside the Am Law 200. During the first nine months of 2019, these firms saw a 1.1 percent decline in demand. This reverses the strong demand increases achieved by these firms in 2018,” noted the report.
Thoughts on Law Firm Pricing
In an article published in Thomson Reuters, titled “Intersect 2020: Lessons from a Law Firm Pricing Master Class,” author Bill Josten, Strategic Content Manager of Thomson Reuters Legal Executive Institute, relays three important lessons on pricing he learned at the 6th annual meeting of the True Value Partnering Institute:
What to Negotiate When Being Promoted
Congratulations! Your boss just told you she is promoting you. Courtney Hazlett, a workplace consultant, offers some advice. Here are three key things to remember to ask for to go along with the increased responsibilities:
Winning the Top Candidate
The economy is strong and there is a lot of competition for the top candidates. Here are some tips for putting your firm’s best foot forward (based on our experiences here at Legal Resource Group):
Funny or Not, Here It Comes
What's the difference between a good lawyer and a great lawyer?
A good lawyer knows the law. A great lawyer knows the judge.
Wife: I love you!
Husband (and lawyer): Do you have evidence to support your statement?
2019 was a good year for the legal industry, according to a recent report from Citi Private Bank's Law Firm Group and Hildebrandt Consulting LLC titled, "2020 Client Advisory.” While 2019 was not as strong as 2018 revenues were in line with other post-recession years. Billing rates were the main driver of revenue growth in 2019, increasing by 4.7 percent. “By contrast, demand grew by just 0.9 percent—a far lower figure than seen in 2018. Firms told us that, while they remained busy across both transactional and litigation practices, it was challenging to deliver growth comparable to that achieved in 2018. More positively, demand growth accelerated as 2019 progressed,” noted the report.
A lengthening of the collection cycle, which continued a trend from previous post-recession years, was a significant drag on revenue growth. By late in the year the inventory of uncollected bills had risen by 6.7 percent. “One of the drivers of this trend was a 4.5 percent increase in accounts receivables—largely caused by clients delaying payment of their bills. Another driver was an increase in unbilled time, which rose by 9.1 percent,” according to the report.
As the year advanced there was some easing of firms’ expense pressure, particularly, as the mid–2018 associate salary increases faded. Expenses rose by 4.7 percent, moderating considerably from the start of the year. “That said, a 2 percent increase in total lawyer headcount caused lawyer compensation costs to rise by 5.3 percent. Most of this headcount increase came from growth in salaried lawyers rather than in equity partners, which firms continue to manage closely… Meanwhile, operating expenses rose by 4.3 percent, largely driven by technology, professional staff and real estate–related costs,” said the report.
Am Law 50 firms saw weak demand growth of just 0.8 percent, while other Am Law segments saw better demand performance. “The best performing Am Law 200 segment were Am Law 51–100 firms, which reported a 1.8 percent rise in demand. Also beating the Am Law 50 firms were the Am Law Second Hundred, which reported demand growth of 0.9 percent. The demand environment was less positive for niche firms—practices that fall outside the Am Law 200. During the first nine months of 2019, these firms saw a 1.1 percent decline in demand. This reverses the strong demand increases achieved by these firms in 2018,” noted the report.
Thoughts on Law Firm Pricing
In an article published in Thomson Reuters, titled “Intersect 2020: Lessons from a Law Firm Pricing Master Class,” author Bill Josten, Strategic Content Manager of Thomson Reuters Legal Executive Institute, relays three important lessons on pricing he learned at the 6th annual meeting of the True Value Partnering Institute:
- “Be cautious of the impulse for filet mignon at taco prices.” Mr. Josten explains that clients often want the best work at the lowest price. Similarly, law firms may sometimes offer high quality, expansive services when what the client really wants is simple work. “Indeed, clients may want to get the legal equivalent of a filet mignon but pay for a taco because at one point in time another firm did something tangentially related at a rock-bottom price. Similarly, law firms may want to offer filet mignon service because the impulse they want to put their best foot forward and go all in, when all the client really needs is a simple taco... Both sides need to understand scope and budget up front. Absent that, services will be offered or asked for that no one needs or intends to pay for. And in the end, no one will be satisfied with the outcome,” notes the author.
- “If you can’t differentiate what your firms brings, you’re doomed to compete on price.” Mr. Josten explains most corporate legal matters have become commoditized or will in the future, as such, firms must justify higher pricing. He suggests analyzing what your firm’s competitors offer versus what your client needs and comparing your own firm favorably. “To build your answer to this, you must start with what matters to the client. That’s the touchstone of what your client values. The options are nearly limitless. Understanding whether your client values improved cycle-time, institutional knowledge of their business, average judgement value, or your firm’s diversity or corporate citizenship will tell you what you need to show them so they can experience your firm’s value. That will inform what unique features of your firm you will want to highlight to clients and to the market,” suggest Mr. Josten
- “Understand why you’re giving a discount and why the client is asking.” This revolves around the tricky question of a client asking for a discount relative to another firm’s bid. Mr. Josten suggests not immediately acquiescing to the client’s request. If you offered the best pricing relative to your services and the requirements of the matter, you should be prepared to defend it. If you didn’t, then you will come off badly when you quickly concede to the matching the lower price. Further, you shouldn’t lower pricing just to win work; there should be larger considerations, as to whether the client, in the long-run is worth the discount. Also, remember, if the client is calling you back, they must prefer your work to the other firm’s, which means there’s room to meet in the middle. “After all, if the lowest-cost vendor was really the first choice, why isn’t the client just calling them and signing on the dotted line? That’s not to say you shouldn’t move on the price. But have a reason to move. Discuss the assumptions and plans that went into constructing the original bid, and discuss with the client what they’d like to change in order to corral the cost,” adds Mr. Josten.
What to Negotiate When Being Promoted
Congratulations! Your boss just told you she is promoting you. Courtney Hazlett, a workplace consultant, offers some advice. Here are three key things to remember to ask for to go along with the increased responsibilities:
- A New Title – It’s more than an excuse to order a fresh batch of business cards. Your new title is actually an important thing to firm up because it could affect your future career prospects. Staying at one job for a long time shows loyalty, but prospective employers want to see that you’ve grown professionally during that time, too. A change in title tells an outsider that you’ve gained more responsibility. Do your homework and come with ideas for a new title if your firm doesn’t already have set titles for each position, according to Ms. Hazlett.
- Extra Pay – A typical pay raise for someone who is promoted within the same firm is around 3 to 5 percent. But someone who switches firms is more likely to see their salary jump by 10 to 20 percent. That’s why it’s so important to negotiate a true salary increase when you’re being promoted. Beyond the fact that you should be paid what you’re worth, a savvy employer knows you could make more by taking your talents elsewhere. Understanding that managers are sometimes bound by policies that limit the amount of a raise they can give, it’s still reasonable to make an ask that reflects a figure that’s in line with industry standards. Any pay conversation is likely to be awkward, so handling the discussion with poise and facts will go a long way to striking a compromise both you and your manager can be happy with, notes Ms. Hazlett.
- Extra Perks – You’ve obviously proven yourself, so take advantage of that by asking for other perks, too, when you negotiate your promotion. That might include things like additional paid time off or working from home a certain number of days per week or month. If you’re shooting for the latter, be prepared to make a good case for how working remotely will only increase your productivity — for instance, perhaps eliminating your commute enables you to work longer on busy days. The point is that there should be an upside for the firm in your ask. While you’re thinking about what to negotiate for and how to do it, remember that being a team player is still important. Going after a laundry list can make it appear like you’re losing sight of the big picture, so prioritize what’s most important to you, and keep the tone conversational and positive, concludes Ms. Hazlett.
Winning the Top Candidate
The economy is strong and there is a lot of competition for the top candidates. Here are some tips for putting your firm’s best foot forward (based on our experiences here at Legal Resource Group):
- Make sure your recruiters are communicative. The hardest part of being a candidate is stepping into the unknown. Not knowing the selection process at each firm can fill candidates with unnecessary anxiety. Have your recruiters inform each candidate of what to expect in the selection process from beginning to end. Also, what is expected of a new hire from day one.
- Make sure your recruiters are informative. Your recruiters should know your firm inside and out or know where to get answer quickly. When a candidate asks a question about your firm, they shouldn’t have to wait days for a response. A quick response shows the candidate that there is a high degree of competency throughout every level of the firm and serious interest in their candidacy. Also, recruiters should know the details of the position. Many candidates reject positions because they hear one thing from the recruiter and another from the hiring manager. Overpromising or underselling the responsibilities and possibilities of an open position is a common mistake recruiters make.
- Make sure your recruiters treat all candidates like a person and not a file. The worst thing for a candidate to feel is that they are an item on someone’s checklist to be dealt with and disposed of. Establishing a good working relationship is important, along with being an “informed” and “responsive” recruiter, which can elevate the hiring experience.
Funny or Not, Here It Comes
What's the difference between a good lawyer and a great lawyer?
A good lawyer knows the law. A great lawyer knows the judge.
Wife: I love you!
Husband (and lawyer): Do you have evidence to support your statement?
