Is 2011 the End of Law Firm Leverage?
Over at The Am Law Daily, Paul Lippe of Legal OnRamp shares some interesting observations on the future of law practice, circa 2011. Although most experts predict that the recession will end by 2011, Lippe doesn't believe that law firms can viably return to the days of business as usual, where firms profited from billable hours generated by armies of associates. Though clients will continue to pay the same amount of money for partner work, Lippe believes that associate revenue will decline by half:
A typical law firm bill in
January 2011 will generate the same dollars for partner work as it does
today, but it will generate half the revenue for associate work.
Consider a bill in July 2008 for $1,000,000, representing $450,000 of
partner contribution, $500,000 of associate contribution, and $50,000
of 'other'; in January, 2011, the bill for an essentially identical
project will be $800,000, reflecting $450,000 of partner contribution,
$250,000 of associate contribution, and $100,000 of 'other.'
To make up for shortfall in labor, firms will likely outsource work, rely on contract lawyers and replace some associate time with technology. But Lippe is confident that clients will no longer pay inflated rates for associates. As a result, smaller firms that can offer flat fees and leverage technology will generally beat out larger firms, even for high-end work.
The only aspect of Lippe's argument with which I disagree is his characterization of the new face of law practice as "the end of leverage." True, firms won't leverage high-cost associates any more, but they'll still leverage their time with technology and lower cost support, as I described in this piece, "Solo Leverage Thyself." As I see it, 2011 won't bring the end of leverage, but the beginning of a new kind of leverage, facilitated by technology. In fact, I don't think we even need to wait that long -- it's happening already.
Posted by Carolyn Elefant on February 10, 2009 at 03:28 PM | Permalink
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