Where Are Partner Billing Rates Surging the Most?
May 24, 2023
A recent Law.com by Andrew Maloney, “Where Are Partner Billing Rates Surging the Most in Big Law,” reports that, while partner billing rates rose last year all over, they skyrocketed in certain practice areas in Big Law and several U.S. cities, according to a new analysis. Going forward, billing rates are expected to continue another steep increase this year. Partner billing rates surged to record levels last year “in all tiers of law firms and in all practice areas,” but it was high-dollar practices that commanded some of the largest rate increases, with mergers and acquisitions, commercial and contracts, and corporate practices leading the way, according to the latest trends report from LexisNexis CounselLink.
Hourly rates for all partners jumped between 2021 and 2022 by 4.5%. That’s higher than the increases in 2020 (3.5%) and 2021 (3.4%), and the highest since CounselLink first began producing the trends report in 2013. The median hourly rate for partners in M&A shot up much more, with a 6.4% jump between 2021 and 2022. Commercial and contracts, corporate, and labor and employment practices also notched significant rate increases, growing 5.8%, 5.6% and 5.6%, respectively, last year.
With the exception of labor and employment, the median hourly rates charged by partners in each of those practices was $675 or more, according to CounselLink. The median rate for M&A partners was $955, the highest rate of any practice area in the report. For commercial and contracts, it was $706. And for corporate work, it was $675. The median hourly rate for partners in labor and employment was $530. The trends report is based on $52 billion in legal spending across 420,000 timekeepers and 1.4 million legal matters.
Kris Satkunas, director of strategic consulting for CounselLink, noted that partner rates were on pace to rise 5.4% in 2023, even higher than last year’s record growth. “There’s still a lot of work to be done in 2023 that has yet to be billed. So, could that change? Yes, of course,” she said. “But we’re on this trajectory right now, and my gut feeling is that it probably won’t go down. It may go up even a little bit.”
While the 2022 rate growth happened in a year of slower demand, she said she’s not convinced there’s a correlation between rate growth and demand at the practice level. More often, she said, it’s a firm-wide decision. She noted that M&A rates, for instance, were still growing at a decent clip a couple of years ago when the practice area was as busy as ever. In 2022, as demand faltered, the rates grew more than ever. Analysts told Law.com that partner billing rates rose partly because law firms were feeling the effects of inflation and trying to maintain profitability as demand took a hit.
Rates are higher for practices such as M&A partly because that work is more often done by the larger, more expensive firms, Satkunas said. “These are kind of the big, high-risk, bet-the-farm sort of matters, and those corporate counsel want to go to the firms they have the most faith in, and those tend to be the larger firms,” she said. Indeed, the trends report noted that in 2022, the “Largest 50″ firms handled 68% of M&A work. “With regard to the other high rate practices of regulatory & compliance, commercial & contracts and corporate, the ‘Largest 50′ firms had 57 percent of the work from these practices,” the authors wrote.
Overall, the largest firms increased market share, the report noted, with their largest gains in regulatory and compliance, corporate and real estate work. But head count size didn’t always determine the largest rate increases. In 2022, the median rate at firms with 501-750 lawyers grew by 9%, but only 3% for the largest firms, the report said.
Rates by City
The report also noted many of the largest legal markets saw the biggest jumps in rates. Six major metropolitan areas saw median partner rate growth climb higher than 5%: Washington, D.C. (a 6.6% jump, to $925 per hour), Chicago (5.8%, to $765 per hour), Los Angeles (5.7%, to $795 per hour), New York (5.5%, to $975 per hour), San Francisco (5.5%, to $608 per hour) and Seattle (5.1%, to $780 per hour).
“On the opposite side of the spectrum, two cities saw hourly growth rate below 2 percent: Dallas and Detroit,” the report noted. Utah led the way in terms of partner billing rate growth among states, with the median rate climbing 6.2% in 2022, up to about $350 per hour.
Satkunas said some of the growth among cities and states is a reflection of the size of law firms there. Dallas and Detroit have some large firms, but also plenty of midsize and smaller firms that didn’t raise rates quite as much. Law firm partners in Utah had more double-digit increases than partners in other states, she noted. Utah just has a smaller population of law firm partners than most states and is thus more susceptible to outliers.