Firms that are willing to accept smaller rate increases are on average experiencing higher demand and revenue growth, according to a new Special Report from Thomson Reuters Peer Monitor.
The report, Does Slower Rate Growth Increase Revenues?, found that over the last three years, firms with slower rate growth tended to have more growth in demand and revenues than firms that raised rates more aggressively.
For many years, annual rate increases have been seen as a reliable means for firms to grow their revenues. But with an increasingly flat market for demand for law firm services, overall rate growth has been slowing steadily in recent years. After reaching a post-recession high of 3.4% in 2012, worked rates (or negotiated rates) grew only 2.7% in 2015.
The Peer Monitor report found that firms willing to accept smaller rate increases may be rewarded with increased demand from price-sensitive clients. For example, midsize firms reduced their average rate growth from 2.5% in the first six months of 2014 to only 2.1% in the same period in 2016. Meanwhile, the average demand for midsize firms grew steadily over the three intervening years.
Conversely, firms in the Am Law 101-200 range accelerated their rate growth from 2.9% in the first six months of 2014 to 3.1% in 2016. During that time, average demand reversed from growth of 1.7% to a negative 1.0%.
Am Law 100 firms, meanwhile, saw their average demand growth fluctuate between 2014 and 2016, depending on whether they raised or reduced their rate growth, respectively.
While the data does not necessarily mean that reducing rate growth is a one-size-fits-all strategy that would benefit every firm, it does suggest it may be worthwhile for firms to re-evaluate their rate strategies in the current price-sensitive environment.
Download a free copy of the Thomson Reuters Peer Monitor Special Bulletin, “Does Slower Rate Growth Increase Revenues?“