Competition for Pricing Legal Fees Heats Up

Is it getting hot in here, or is it just the competition for pricing legal fees heating up?

If you have started to sweat over the pressure to cut fees, you are not alone. Ninety-five percent of the lawyers in a new survey said they expect more price competition, and fully three fourths expect more non-hourly billing and alternative fee structures.

The competition — from legal service providers, technology firms, and others — is rising. Nearly 400 law firms in the national survey say it reflects a permanent change in the law business.

95 Percent and Rising

Altman Weil, in an annual survey, questioned managing partners and leaders at 798 American law firms with 50 or more lawyers. For “Lawyers in Transition 2017,” the legal consulting firm asked for the first time about pricing concerns and efforts to compete in an increasingly competitive marketplace.

“These changes are being driven by what is perhaps the most immediate and basic threat that traditional law firms face in 2017 and beyond — the continuing erosion of demand,” the survey says.

The biggest changes, the survey revealed, are happening at the biggest firms. In law firms with more than 250 lawyers, more than 80 percent of the respondents said legal service providers were taking their business.

About the same number predicted that the trend will continue. Non-traditional, including non-legal service providers, will compete for legal dollars.

Legal Cost Control

At the same time law firms feel the pinch from legal service providers, corporate clients are taking more business in house. The climate is at least uncomfortable, as law firms consider alternative pricing plans.

With cost uncertainty a pain point, Thomson Reuters’ Paresh Khushal examined how law firms and clients work together to get the best deal. Among various approaches, he said fixed fees have benefits for both parties.

There is some tension between them because lawyers want to maximize their value by time invested. Clients want a fixed fee, regardless of time spent.

“One way to make this billing strategy beneficial to both the client and the law firm is to share in the savings,” Khushal said. “The firm could keep track of their hours and then calculate at the end what the hourly bill would have been.”

He said if the fees are less than the flat fee, the client and the law firm could share the savings 50/50.

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