Number of law firms planning to raise charge out rates increases

The number of commercial law firms expecting to overcome customer resistance and increase charge out rates over the coming year has jumped by a half.

A survey by Thomson Reuters has found that one third of finance directors (FDs) from 26 of the UK's Top 100 law firms say it is likely their firms will increase their charge out rates in order to improve profitability in the year ahead. A further half sees the move as a distinct possibility.

These findings come despite continued pressure from clients to keep fees down. Just 8 percent of FDs thought it likely they would increase fees two years ago and only 21 per cent thought so last year.

The finding that eight out of ten Top 100 FDs see raising fees in 2015 as a real possibility suggests a degree of cautious optimism has returned to the market.

Sam Steer, head of large law segment for Thomson Reuters UK legal business, commented: 'Although [FDs] are keenly aware that client pressure on fees remains intense, after such a long period of depression a significant proportion of firms now feel they are at a point where they could and should start to command higher rates.

'However, firms realise this is not going to be an easy sell to clients who are likely to negotiate hard to keep fees down, so their approach to increasing charge out rates is likely to be softly softly, rather than gung-ho.'

Steer added that increasing fees will not only help firms to improve profitability directly but will also enable them to increase investment in their staff, systems, and services.

As the economy recovers, firms are recognising the need to invest in talent. Thomson Reuters research has found that the likelihood of pay and bonus freezes or cuts and redundancies has fallen to just 4 per cent.

In addition, all of the FDs surveyed said it was likely or possible they will make lateral hires of senior teams this year, a figure that is up from 79 per cent in 2014.

The survey also found 72 per cent of FDs were likely to initiate tighter credit controls to improving profitability. Increased cross-selling was also likely to be a central part of firms' strategies to boost profitability, while only 4 per cent thought providing new non-legal services through an alternative business structure (ABS) was a possibility.