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Law firms’ pricing of legal services depends in part on the degree the work is leverageable

Law departments need to appreciate that law firm partners often look at potential work in terms of its degree of leveragability. To wit, if the matter is likely to be partner intensive – it is sophisticated, fast-moving and requires much judgment – some partners feel they need to charge higher hourly rates than if the work enables them to deploy many associates (See my post of Feb. 16, 2006 on net income per partner depending, inter alia on leverage; June 19, 2006 about data showing 40% partner hours on average; Aug. 21, 2005 about a surprising lack of paralegal leverage in firms; but see my post of Sept. 25, 2005 on the risks of too much leverage.).

Most firms set their hourly rates the same across the firm for all lawyers at a certain level but in truth different practice groups or lawyers should have choices of different rates due to whether they leverage their work. Aware of these operational features of law firms, law departments ought to adopt more nuanced views on billing rates; certainly, one-size-fits-all billing rates is tailor-made for dissatisfaction.