According to Thomson Reuters Institute and the Georgetown University Law Center on Ethics and the Legal Profession, law firms raised their rates an average of 4.8% through the first 11 months of 2022.
Am Law 100 firms raised their rates 6.3% on average last year, which was followed by Am Law 200 firms at 4.8% and midsize firms at 3.8%.
The continued uptick in fees charged to clients came during a period in which demand for legal services rose only 0.1%, down from the 3.7% growth rate recorded for all of 2021, said the report.
The legal market report highlighted that the law firm rate increases last year were fairly aggressive and that firms continued to collect the rates they billed. But the report highlighted that the rate bumps through November 2022 were slightly less than the 5% average rate of inflation.
For 2023, the report said, law firms appear to be counting on rate increases to maintain profitability. Along those lines, law firm leaders previously told the Wells Fargo Legal Specialty Group they plan to rate rates this year an average of 7% to 8% before discounting.
However, the Thomson Reuters and Georgetown Law report said there are signs clients may be more resistant to further rate hikes as evidenced by a slowdown in client payments late last year.
“If firms are unable to fall back on rate increases as their traditional response to economic challenges, they may face increasingly difficult decisions in 2023 and 2024,” the report said. “Again, this will likely depend on the length and depth of any coming recession.”