Clients vote with their feet as rising costs bite

20 October 2022

A survey of 200+ law firm partners commissioned by Harbour, a litigation funder and lender to law firms, has revealed increasing pressure on law firms from clients seeking more affordable services.

A survey of 200 law firm partners located across the UK suggests they may need to do more to help clients mitigate the impact of rising costs and an increasingly uncertain economic outlook.

46% of partners said clients were moving work to less expensive competitors, and 44% of partners reported they were under pressure to reduce their fees in the face of increasing costs.  The competitive landscape is featuring more highly on the agenda of law firm leaders, with 41% saying competition is an important factor in setting their firm’s strategy (a 20% increase on what was reported in 2021).

Due to a reported drive to make savings, a third (34%) of respondents said they believed their clients were relying on a greater use of in-house counsel (34%), thereby outsourcing less work to panel firms, whilst a third of partners (33%) said they are reducing their department’s headcount.

Litigation clients seem to have a greater appetite for settling claims, with 40% of partners saying they had seen an increased desire from clients for earlier settlements, and a third of clients (34%) choosing not to pursue new claims for now.

The research, commissioned by litigation funder and law firm lender Harbour, found that client needs and demands were the leading factors influencing law firm strategy: the reason was cited by as many as 67% of partners at the largest firms (with turnover in excess of £400m).

Change is coming fast.  The survey responses suggest that macroeconomic conditions are quickly impacting the purchasing power of some law firm clients. To dissuade them from sending work to competitors, law firm leaders may wish to think about what creative options they can offer clients for financing legal services.

One solution may already be known – in response to the challenges of meeting client demands and economic forecasts of recession, 78% of partners said they would consider credit facilities to fund growth projects – offering more contingent fee solutions to clients, acquiring new talent, or funding merger activity and new offices.  45% of partners said external capital could be invested in technology, to reduce the impact of rising litigation costs, or to reduce the cost of routine work..

Ellora MacPherson, Chief Investment Officer at Harbour said,

“These insights from law firm partners suggest that the economic forecast, and the rising cost of corporate living, may squeeze law firm finances.  As well as managing their own rising costs, firms will also have to find creative ways to help clients navigate a difficult trading environment, to avoid clients switching to competitors.     Law firm leaders have the option to fund new strategies from the partnership, but the high proportion of responses (78%) saying they would consider taking a credit facility suggests there is real interest in using external finance where appropriate. With 2023 likely to be a challenging lending environment, there is certainly merit in firms partnering with a lender who really understands how lawyers and law firms work.”

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