Summary
Article Overview: Large law firms have increasingly relied on raising billable rates—typically 5-10% annually for partners—as their primary strategy for maintaining profitability, driven by strong demand in areas like M&A and litigation, rising associate salaries, and general inflation pass-through costs. In response, clients have pursued legal countermeasures including Alternative Fee Arrangements (AFAs), negotiated rate caps, and panel consolidation to regain leverage in fee negotiations.
# A Guide to Biglaw's Good Year: The Strategy of Raising Billable Rates ## Overview Large law firms (Biglaw) have increasingly relied on raising billable rates as a primary driver of revenue growth and profitability, even during uncertain economic periods. ## Key Factors Behind Rate Increases ### 1. **Demand Dynamics** - Strong demand for legal services in areas like M&A, litigation, and regulatory work - Clients with urgent, high-stakes matters have limited negotiating power - Complex transactions require specialized expertise that commands premium pricing ### 2. **Talent Competition** - Rising associate salaries must be offset - Partner compensation expectations continue to climb - Lateral hiring wars drive up costs across the board ### 3. **Inflation Pass-Through** - Firms cite general inflation to justify increases - Operating costs (real estate, technology, support staff) rise annually - Clients have become somewhat accustomed to yearly rate hikes ## Typical Rate Increase Patterns | Attorney Level | Annual Increase Range | |----------------|----------------------| | Partners | 5-10% | | Senior Associates | 5-8% | | Junior Associates | 4-7% | ## Client Response Strategies - **Alternative Fee Arrangements (AFAs)** - Negotiated discounts or caps - Increased use of legal operations teams - Panel consolidation for leverage ## The Bottom Line While raising rates isn't the *only* path to profitability, it remains the simplest lever for Biglaw firms to pull—especially when demand remains strong and clients continue paying.For more insights, read our Divorce Decoded blog.