Empowered by an increasing demand for legal services—particularly among Am Law 100 firms—more and more law firms have successfully increased both their standard and negotiated billing rates over the past year, according to a recent Thomson Reuters Peer Monitor Index report. This bodes well for law firms, as increased demand leads to increased revenue, profitability and job growth. But it also begs the question: If demand and revenue are both increasing, why, then, are law firms experiencing the biggest six-month decline in collected realizations in four years?
The answer is simple, yet unfortunate: Any profitability gains that law firms have realized from rate increases or productivity improvements have been eroded due to excessive discounting and write-downs, the Peer Monitor report shows. So, while law firms have been able to secure higher billing rates, the point becomes moot once the client receives the monthly invoice and the write-downs begin. On average, law firms collect less than 89 cents of every dollar billed at their negotiated rates.
