Law Department Management Blog
I have this belief, quite possibly fallacious, that lower-cost firms have less margin to cut, so discounts across the board along the lines of “10% from the standard rates of each of our firms” hurt them more than higher-cost, fatter margin firms. Perhaps that belief is unfounded hooey, since lower rates may be possible because they pay their lawyers less and have lower operating costs such as rent and services. In other words, margins stay comparable regardless of overall billing rates.
But assume that high-rate firms can absorb higher discounts and not suffer as much as a lower-rate firms. Why not emulate the progressive tax code and raise the discount levels faster for law firms with higher rates?
To illustrate, one combination could be that for every $50 of difference in effective billing rates, the threshold for when a higher tier of a rate discount applies drops $500,000. By that rule and for a given number of hours of work, a law firm with an effective billing rate of $300 an hour would hit the higher discount rate later than a firm with a $350 an hour rate. Alternatively, since $50 is one-sixth higher than the $300 an hour of the lower-cost firm, the threshold for the discount to rise would be one-sixth lower for the more costly firm.
Possibly, the underlying premise is flawed or the approach too complicated. But a decent matter management or e-billing system could handle the computation and tracking and you would only do it for a handful of firms. Savings could be greater and the law department would thereby drive law firms toward more similar effective hourly rates.