According to Thomson Reuters, “worked rates,” which is the agreed-upon rate between law firms and their clients, showed the Am Law 100 actually set a new record for rate growth at 7.3%. Additionally, Midsize firms enjoyed a 1.3 percentage point jump between 2022 and 2023, on average, the study notes.“Through this lens, 2023 has been a remarkable year. All three law firm segments we track …have seen the pace of rate growth far exceed the growth in worked rates even from the end of last year."
From X (formerly Twitter)
"Clients of AmLaw 100 firms doing their best to prove they’ll pay whatever rates their firms throw at them. A 7.3% average rate increase in one year? Woof. https://thomsonreuters.com/en-us/posts/legal/law-firm-rates-report-2023/"
According to LawPay, a billing and software firm based in Texas, the median hourly rate for legal services in 2022 was $261 per hour with an average of $269 per hour. Nationwide, average rates ranged from just over $200 per hour to as much as $424 per hour, which was the rate in the District of Columbia.
While many states saw the average hourly rate jump between 2021 and 2022, some states—Arkansas, Idaho, Illinois, Michigan, Minnesota, Nebraska and Nevada—saw lawyers making less per hour in 2022 than 2021, notes the data.
The Thomson Reuters figures paint an optimistic picture for law firms looking to bolster profitability. However, the report notes that picture is incomplete without considering other factors like the total number of billable hours worked as well as the translation from worked rate to “collected rate.” Those metrics, defined as “demand” and “realization,” tell a slightly different story. “Indeed, rates are a crucial driver of profitability, but only so far as they drive law firm revenue,” it adds.
Notably, law firms in every segment have taken a hit in their realization percentage, and that decline has hampered law firms for at least the last five consecutive quarters, reports Thomson Reuters. As such, profit margins have suffered, “tarnishing an otherwise strong picture for law firm profits.”
“Law firm rates—what firms charge for legal work performed—are a strong driver of profitability, yet too many firms don’t pay enough attention to the delicate dance of setting rates with clients,” it reads.
The full report, which was generated in conjunction with the True Value Partnering Institute, also provides insights into historical data and some of the pitfalls law firms might run into as they seek to improve their profitability. It can be accessed here.