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Two descriptive metrics on counsel retained: fee concentration with firm size and effective rate

General counsel should focus on concentration of their external spend rather than on the number of firms paid (See my post of March 24, 2005: concentrate spending instead of converging law firms.). For example, a concentration target might be 75 percent of all spend to go to 10 percent of the law firms paid. Let’s call them the core group.

Such a metric on concentration invites a more sophisticated extension. We could take into account the size of the firms in the core group as measured by their number of lawyers. We could then calculate a metric on total lawyers in the core group. My hypothesis would be that the higher the number, the higher the effective rate paid.

Or we could simply calculate the effective billing rate of each of the firms in the core group and take the median (See my post of May 10, 2005: effective billing rates; Sept. 10, 2005: effective billing rates; Jan. 3, 2007: effective billing rates and law firm size; May 3, 2008: thoughts on effective billing rates; Nov. 16, 2008: low chargeable hours and rates; Feb. 23, 2008: question about data on rates; June 13, 2006: difference between blended and effective rates; June 19, 2006: unfair to compare average partner rates; and June 30, 2007: effective rates as a test whether discounts have any bite.). Neither concentration nor convergence avails as a cost cutter if bigger firms thereby waltz in with higher rates.