Peer Reporting: Measurements of Market Sentiment November 2013
Survey Methodology • An email invite to complete an online survey was sent to those who registered to attend the 2013 Peer Monitor Client Summit. • 15 registrants completed the survey 2
Economic State Expectation of Downturn as Expectation of Extent of Economic Downturn Permanent Change 54% 39% Yes 54% No 46% 8% 0% 0% ( n=13 ) Already 1 year 2 years 3 years Entering a ( n=13 ) recovering new normal The economy will revive from the recent economic downturn, but not to the previous extent, instead it will enter a new normal Additional commentary: “I actually don't think it's an economic down turn but clients getting smarter in how they will engage in legal services in t he future. It's now the norm! “Lots of speculative work around at the moment.” “The days of super profits for law firms are over! Sophisticated clients many with lawyers from private practice in their cou nsel teams are aware of law firm profitability - we are now seeing evidence of the economic profit arbitrage through pricing pressure and clients who are more willing to accept an 80% solution (or less) rather than the traditional 100% water-tight solution - for which there is a price and value adjustment downwards." Q1 The AU legal market is currently experiencing an economic down turn. Do you feel this is a permanent change or not? How long do you believe this will last? 3
How is your firm doing in comparison to your Peers?
Revenue For My Peers REVENUE GROWTH Peers $100 6% 4% $80 2% My Firm Millions 0% $60 -2% -4% $40 -6% -8% $20 -10% $0 -12% YTD y/y % Chg
Greatest Challenge Facing Law Firms Changes to legal fee structure 87% Business development 33% Concerns around changes to legal fee structure outweigh Legal matters moving in house 33% other firm challenges Client retention 27% Rising expenditures 20% Talent retention 7% ( n=15 ) Q2 What do you feel is the greatest challenge facing your firm in today's legal market? (Check your top two answers) 6
USA: Billing Methods • Although hourly rate including discount variants is the most popular billing method, it has seen decreased usage in the past 2 years and that is expected to continue Current Billing Change in Past 2 Years Change in Next 2 Years Methods (n=12 to 65) (n=13 to 64) (n=65) Increased Stayed the Same Decreased Increased Stayed the Same Decreased Hourly rate including 67% 25% 37% 39% 19% 33% 48% discount variants Hourly rates with premium 9% 37% 50% 13% 48% 44% 8% or discount based on result Project, fixed fee or flat rate and subscription; includes 15% 72% 28% 0% 81% 18% 2% menu pricing, portfolio pricing and retainers Full contingent pricing (i.e., fixed percentage of result 4% 31% 59% 10% 36% 47% 16% or deal) Other, please specify 5% 8% 92% 0% 15% 85% 0% Q9 In 2012, approximately what % of your firm’s revenue was billed using each of the following methods? Q10 Please select how each of the listed billing methods changed for your firm in the last 2 years? Q11 What do you expect to happen for each of the listed billing methods in the next 2 years? 7
RATE SETTING
Billing Rate Growth by Practice 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Banking & Dispute RE & M&A Work Ins. Def. IP Finance Resolution Projects Relations My Firm My Peers
Billed Rates by Title for Dispute Resolution Matters 800 750 700 650 600 550 500 450 400 350 300 250 200 Partner Experience in Years Sr Associate Class in Years My Firm Peers
Rate Progression Standard $575 $525 $475 $425 $375 $325 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 '10 '11 '12 '13 My Firm Regional National Billed $575 $525 $475 $425 $375 $325 $275 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 '10 '11 '12 '13 My Firm Regional National
Discounting Strategies My Firm Regional Peers Standard to Worked: Discounted 8.5% Increased 1% Worked to Billed: Discounted 7.3% Discounted 3.5% Billed to Collected: Discounted 5.4% Discounted 3.8% Standard Rate: $389 $585 Collected Rate: $339 $559 Total Discount $50 or 13.8% $26 or 4.4%
Firm Strategic Objectives % Agree - Top 3 Box on an 8 Point Scale 88.3% Focus on becoming more efficient Win new business based on our firm's value 84.1% Enhance our reputation among domestic Firms tend to put more focus 83.3% corporations on domestic objectives than global/international Focus on and grow select practices 82.5% Be considered the best of the best 80.8% Make changes to our lawyer/partner 72.5% structure Invest in our infrastructure 65.0% Enhance our reputation among global 64.1% corporations ( n=15 ) Q3 What is your strategy for dealing with the current market? Please rate how much you agree or disagree whether each of the following statements is a strategic objective of your firm. 13
USA: Do you utilize Social Media? 250 attorneys and fewer (n=13) Over 250 attorneys (n=24-25) 96% 92% 92% 92% 92% 85% 67% 62% LinkedIn Twitter Blogs Facebook Q52 Does your firm use LinkedIn? Q58 Does your firm use Facebook? Q64 Does your firm use Twitter? Q69 Does your firm use blogging?
USA: Dedicated Staff to Social Media • Business Writer • Communications Manager • Communications Specialist • Coordinator • Director of Marketing 69% • Internet Marketing Assistant 68% • Manager, Social Media • Marketing and Communications Coordinator • Marketing Assistant • Marketing Communications Coordinator • Marketing Communications Coordinator and Marketing Technology Specialist • Marketing Manager • Marketing Specialist • Marketing Technology Manager • Online Marketing Manager • Public relations specialist • Regional Marketing Manager • Social Media Specialist 250 attorneys and Over 250 • Supervisor of Social Media and Contact Database fewer (n=13) attorneys (n=25) • Webmaster Q48 Do you have anyone on staff who is dedicated to social media? Q49 What is this person’s title?
Top priorities for 2014 Fiscal Year Priorities for 2013 – % Top 3 Box on a 3 Point Scale Increasing cross selling to existing clients 96% Taking steps to further enumerate in a clear, concrete 96% manner the value your firm delivers to its clients More effective partnering with clients on matter 87% management Greater use of client teams 82% Training lawyers in project management skills 82% Increasing cross selling, Increasing profits per partner 80% enumerating firm value to clients, and effective Increasing average billable hours per attorney 80% partnering on matter management are key Talent Management 80% priorities Improving realization rates 78% Greater investment in marketing and client development 78% Branding strategies 78% ( n=15 ) Q4 Below is a list of topics you may or may not be thinking about as part of operating your firm in the 2014 fiscal year. For each, please select the response that best reflects the priority level your management team will assign to each over the next 12-24 months. 16
Tracking Your Practice Growth
Demand Growth by Practice 15% 10% 5% 0% -5% -10% -15% Proportionality 24% 23% 21% 14% 10% 8% -20% Real Estate & Dispute Banking & Intellectual Employment & Taxation Projects Resolution Finance Property Workplace Relations My Firm Peers All fee earners; AU offices only
USA: Are you using Client Teams? 250 attorneys and fewer (n=14) More than 250 attorneys (n=25) 52% 43% 29% 29% 28% 20% Yes No, we have no plans to No, but we are planning implement client teams to implement client teams Q36 Does your firm have a focused client team program?
Outsourcing Likelihood of incorporating or continuing Legal Process Outsourcing (LPO) LPO use in next 12 months Outsourcing 7% 46% 1 = Not at all likely 33% 0% Using 2 36% 3 33% Will probably use 0% 4 27% Might Use 18% 5 = Very likely (n=15) Never ( n=11 ) “It all depends on the size of the transaction” Outsourcing is a growing resource Q5 In terms of strategy, what are your thoughts on Legal Process Outsourcing (LPO)? Q6 Please indicate how likely your firm is to incorporate or continue the following into your firm’s legal services delivery str ategy in the next 12 months? 20
What is Trending in Expenses?
Indirect Expenses per Lawyer Growth Expenses My Firm $17,500 10% 10% $15,000 5% $12,500 0% $10,000 $7,500 -5% -28% $5,000 -10% $2,500 -40% $0 -15% Staff Occupancy Office Tech Taxes Marketing Library Benefits Outside Recruiting Comp Services YTD y/y % change Peers $17,500 10% $15,000 5% $12,500 0% $10,000 $7,500 -5% $5,000 -10% $2,500 19% -51% $0 -15% Staff Occupancy Office Tech Taxes Marketing Library Benefits Outside Recruiting Comp Services YTD y/y % change AU offices only
Law Firm Structure Confidence in Current Structure Extremely confident/ No need 13% for change 13% 20% Quite confident Majority of firms are only moderately confident in their current law firm structure Moderately confident 53% Slightly confident (0%) Not at all confident/ Will need ( n=15 ) to change Q7 How confident are you in the current structure of your firm v. the need to adjust to accommodate the current market? 23
Is the Structure Changing?
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