Financial pressure: Client demand down
Three-quarters of law firms have experienced a drop in demand for legal services over the past 12 months and the same proportion expect the decline to go on for another year, a report has found.
Researchers said the legal market was experiencing a “serious reversal of fortune”, with client demand down and the decline expected to continue, “compelling firms to take decisive action to safeguard profit”.
Twice as many firms (61%) agreed to reduce prices in response to client pressure when buying legal work over the past 12 months, as opposed to increasing them (30%).
“A decision to increase prices is understandable given the escalating cost base experienced over the past year or so, but when law firms have been experiencing increasing client calls for more cost-effective service delivery for years, is a price hike tenable in a highly competitive market?
“Would it be better to cut rates and opt for lower profits as a short-term solution aimed at growth?”
Tech firm BigHand based its research on 825 responses from law firm leaders, operations teams and support services managers from firms with over 50 lawyers in the UK and North America.
Almost nine out of 10 law firms (87%) said clients had become “far more cost-conscious” when buying legal services over the past 12 months.
In response, 29% of firms were focusing on building stronger client relationships to address the downturn in demand, while 21% turned their attention to reducing travel expenses and rental spend.
“The value of close, trusted relationships at both a firm and an individual lawyer level is widely recognised by in-house legal teams, with a trend towards clients looking for a single, global law firm with access to broad, multi-disciplinary teams to support all of their service needs.
“Indeed, the time it takes to build new relationships is a notable cost for all businesses. There is a growing recognition that face-to-face interactions are still very important to both building and reinforcing the quality and depth of a relationship.”
Researchers found that 22% of firms had opted to accept lower profit levels amid falling client demand, while 29% had changed benefit packages, including base salary levels.
A quarter of UK law firms (26%) had made headcount reductions to non-fee-earning employees.
“While reducing the number of support staff delivers immediate cost savings, the trend also raises questions about how firms will ensure the right tasks are undertaken by staff with the correct level of expertise.
“How will firms avoid the inevitable write-offs associated with lawyers undertaking administrative work – a cost that price-sensitive client will not accept?”
Researchers found that a quarter of firms had implemented tech “simply to drive efficiency and profit”, while 63% were “actively highlighting to clients and potential clients the use of this tech to demonstrate that they are operating efficiently and cost-effectively”.
A similar proportion of firms was “focusing heavily on ensuring that work is allocated to the right people” through tech, while 59% were using it to “find operational efficiencies through better utilisation of staff and expertise”.
Similar proportions said tech had helped them achieve better financial transparency (62%) while 63% of firms indicated they now had better visibility of who was advising on a matter.
See blog: Conquering cost challenges through workflow management
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