The 2023 Report on the State of the Legal Market is out and the results paint a telling picture about law firm profitability. As Jean O’Grady of Dewey B Strategic put it so succinctly in a recent article, “it’s bad.” For the first time since 2009, profits-per-equity partner are down. Hours per month have reached a low point not seen since the early 2000s. According to the report, that loss translates into $98,000 less in total fees billed per lawyer.
The reasons for the change in profitability vary, but one of the simplest explanations is that clients are reluctant to spend money on transactional work in a troubled economy. There’s no way to accurately predict when this downturn will reverse course. Firms that wish to endure the challenges ahead will need to get strategic about their finances to maximize profitability in the year ahead.
How Can Law Firms Begin to Mitigate Negative Economic Impact?
One of the best places for a law firm to begin is with a thorough review of current and pending legal research services contracts. Why is that?
- Legal research services are an expensive — and unavoidable — cost of doing business largely because there is so little pricing competition between top providers. In short, you’re paying too much in a good year, much less a bad one.
- While law firms may have struggled in the last year, legal research providers have continued to hike rates by 6-10% to tie in with inflation each year.
- These rate increases are stipulated in the legal research contract, making them unavoidable. It’s worth noting these increases have never gone down in percentage even during years when inflation is low, calling into question just how necessary the increases actually are.
- The product and service offerings have been low effort most years, making it difficult to justify price hikes under the guise of research and development.
Legal research providers typically design their “packages” based on the number of attorneys in the firm. Meanwhile, those same attorneys are billing less hours than any other time in the last decade, translating into an even greater decrease to the bottom line.
Tips for Cutting Down the Cost of Your Legal Research Services
Paring down the cost of your legal research services will certainly help your firm save money. However, the process to get there is not easy. Your sales rep will not be thrilled to cut into their commission (or profits, in the case of the provider). Here are some tips when your window for renewal opens:
- Enlist help. One of the greatest disadvantages for most law firms is that key decision-makers simply do not have the time to play the sales game. Legal research providers definitely use that to their advantage. Designating a third party to manage the process can save you income-producing time, as well as money.
- Don’t yield to manufactured urgency. Sales reps know that time is particularly valuable in the legal field. They will work to wear you down while pressuring you with looming deadlines to create the impression you will lose out on a great deal. In reality, you will end up spending thousands of dollars more.
- Read the fine print’s fine print. Your reps are required to provide you with the terms and conditions. They are not required to help you navigate a nest of addendums and links to find hidden clauses that can cost your firm tens of thousands of dollars.
Reviewing and renegotiating your legal research contracts can help you save thousands of dollars on your annual expenses. That is a compelling reason to tackle that expense first when improving your firm’s profitability.
If the newest financial report has you concerned about the economic future of your firm, I may be able to help you save money on your legal research services. Contact me today to schedule a time to talk.