58% of corporate counsel say that law firms are too profitable

More than half of corporate counsel surveyed (58%) say they believe law firms are too profitable, according to the LexisNexis State of the Legal Industry Survey.  This means clients feel they were ripped off, or overpaid for what they got from law firms.  And clients are sending law firms a message: change or die.

This eye-opening statistic sums up the why there is high tension between law firms and clients, why the ACC Value Challenge is being pursued, and why corporations want flat fees and an end to the hourly bill.  It also means that the way law firms conduct commerce with their clients will change forever, starting right now, and that the change will be permanent.

Law Firms Are Too Profitable

Pricing is the No. 1 issue facing the legal profession today.  Of course law firms respond that they have already cut salaries, laid off staff and lawyers, offered alternative fees, implemented hiring freezes, deferred start dates for new associates and use technology to be more efficient. But it's not good enough.

It's no good when corporate counsel read in the AmLaw 100 that 19 firms had annual profits per partner of $2 million or more, or that four law firms have lawyers charging $1000 per hour or more.

AmLaw100 Profits Per Partner

The tension between lawyers and clients is so bad that one-fifth (21%) of students say that based on the changing legal marketplace, they regret attending law school, according to the LexisNexis report.

Meanwhile law firms are making the huge mistake of not giving clients a price break when they ask for it. Almost half the in-house counsel polled (46%) say they have requested rate cuts, yet less than one in five (18%) private practice attorneys say their law firms have reduced billing rates. Just know that people always remember those who didn't help them when the economy was down.  There will be hell to pay for this, because loyalty is a two-way relationship.

Corporations are already punishing law firms. 69% of corporate counsel have shifted work in-house since the start of the economic downturn and 56% have reduced spending on outside counsel.  This means there is less legal work for law firms to do.  The corporations are trying to starve the law firms out.

Who will win this debacle?  That's easy: the customers have all the money, so they win. Remember the maxim, "the customer is always right" ?  It's true in retail and it's true in professional services. Whoever has the gold calls the tune.

This means law firms will have to change their business model, starting with dumping the billable hour. Will this change be permanent, or will things to back to the way they were before 2007?  Read the following words carefully: the change is permanent.  A sea change has taken place between law firms and clients.  Every piece of market research I've read in the last six months proves this to be true:

Law firms must obey the top rule of Marketing 101: Find out what the clients want and sell it to them.  In this case the clients have devoted an entire web site to what they want at http://www.acc.com/valuechallenge/ 

The message to law firms is simple: change or die.

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