But before we discuss how we can do that without the ritual dance over rates, let me make sure the law firm leadership reading this understands why they absolutely must hold off on sending out that letter.
Five reasons your law firm must
not mail that rate-increase letter
1. Your timing is—as it is every year when you send these letters—miserable. You're sending them to clients after they have finished approving their budgets for 2013. Sheesh, guys, I know this is when the conversation arises in your firms' business cycle, but haven't you learned anything yet about your clients' business cycles? Sending this letter in December or January about 2013 rates is just asking for it.
2. Law firms no longer own or even dictate the market for legal services. Sending this letter ignores that fact and puts your firm in peril. While it may hurt you to hear me say it, law firm services are increasingly fungible (still important and complex, but fungible). They can be performed by a growing multitude of providers who are offering faster, cheaper, more technologically savvy and sustainable services that deliver better results.
Your competition isn't the firm down the street that's also sending out the same tone-deaf missive to its clients: it's the law department itself, which is hiring more in-house staff to replace you and your services, or the law firm someplace far away that you've never considered to be competition that's in your league, or the non-law firm service providers who are delivering services you used to provide, exactly as the client wants them: on-time, on-budget, and with better results.
And for a lot less (not a little less).
Many of you won't believe this is true, but it's more than an assertion: these in-house counsel purchasing trends are irrefutable and supported by every major legal study.
3. It may be that your firm does have legitimate reasons for a rate increase, or your current services might be undervalued. If so, by all means talk to your clients about re-pricing the work. But if you're about to send that letter, I bet I know what your rate increase letter says: it includes some variation on this theme. An acceptable justification for a price or rate increase does not include any permutation of words that actually mean the following:
• The firm would like to make more money (and can't squeeze out any more hours than they're already billing).
• We've raised our rates every year at this time and it's always worked before: we've even raised rates at an exponentially higher pace than inflation for providing exactly the same services each year for the last several decades—so we assume our clients will continue to pay these increases from habit and "training."
• The firm's cost of service is going up: the firm had no choice but to raise associate salaries again, pride obligates us to follow the Cravath bonuses, our best partners expect that every year their PEP must rise or they'll leave and take all our business with them; further, the landlord of our luxury office space located in the most expensive real estate market in the country is increasing our rent again; and we have so few secretaries and support staff left now, we really can't afford to fire any more to cut costs.
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