Can The Law Firm Business Model Survive?

In the Economics and Profitability Masterminds session at the Legal Marketing Association conference, William T. Garcia, Strategic Initiatives at Howery and Mark Price, Director of Marketing of White and Williams, question the traditional model of law firm economics. We no longer live in the world of leverage on associates at the lowest level of law work, the world of clients unwilling to question price because low cost was equated with low quality, and a world of high volume low value work.

Market forces:

• new recruits are ready for high value work now
• low availability of high volume low value work
• clients no longer willing to pay for it
• rate increases vs. rate of inflation
• clients unwilling to accept annual rate increases
• disaggregation of law services, more client management responsibility
• rate negotiations and discounting
• perceptions of the legal industry
• expectations re: technology expectations

Levers of profitability

• capacity
• utilizaton
• rate
• realizaton

Billable hours – as capacity increases, compensation expense increases rate is allocated by individual lawyer.

Project fee model – as capacity increases, compensation expense can increase OR time per project can decrease rate is allocated by project. Smart law firms will add back capacity at the lowest possible cost.

Good marketers will talk to their attorneys about AFAs as producing a lower payment risk. More collectible because payment is coming in on front or as retainer, reducing time needed by attorney to collect.

For AFAs, firms will need to continue to pipeline associates to partners, but focus on outsourcing low value work or staff based work in order to expand and contract through non-employees.