A formula to calculate savings from rates frozen for a matter

Previously I took a position in support of billing rates frozen for the duration of major matters (See my post of Dec.17, 2007.). With such an arrangement, a law department would like to know how much savings might be projected from that technique.

Based on historical figures, law firms typically expect to raise their billing rates at least five percent annually. If the law firm you select, the one that agreed to freeze its rates, has projected a plausible budget for the next year, it is easy to multiply the budgeted amount by the five percent increase that can be anticipated. Hence, if the budget projected for 2008 is $250,000, the savings would be $12,500 ($250,000 x 0.5%). The calculation is a bit more complicated if the firm’s rate increases take effect later in 2008, but the math is similar.

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