If clients are increasingly unwilling to pay high fees, how else can law firms make money?

[Ellisha]

I've seen a few variations of this question, e.g.:
given that London clients are not willing to pay as high fees as Wall Street clients, how can UK firms stay competitive against US firms?
or
How can firms survive the proliferation of AI which may render charging high fees for services unjustifiable?

I'm honestly a bit stuck. It seems to me like clients are THE primary way for law firms to make money, and if clients increasingly opt for the 'big 4' accounting firms or expect significantly lower prices, aren't law firms in trouble?

 

[Alice G]

I've seen a few variations of this question, e.g.:
given that London clients are not willing to pay as high fees as Wall Street clients, how can UK firms stay competitive against US firms?
or
How can firms survive the proliferation of AI which may render charging high fees for services unjustifiable?

I'm honestly a bit stuck. It seems to me like clients are THE primary way for law firms to make money, and if clients increasingly opt for the 'big 4' accounting firms or expect significantly lower prices, aren't law firms in trouble?

Some ideas:

- Offering consultancy services alongside legal services
- Outsourcing work and using tech to make it cheaper and more attractive for clients - remember, if you have clients coming to you because you are cheaper, you just need to service more clients to make up the money - outsourcing and using tech means firms can churn out more work at cost.
- AI needs to be targeted carefully - it can do the more run of the mill tasks but there are so many nuances in law and clients may still want the 'human face' of the law - keeping clients happy becomes more imperative with the advent of tech - all about keeping strong ties
- Cross-selling work between departments and international offices - offering clients competitive fees for them to keep all their needs within a single firm rather than going to a competitor for their tax matters for example.
- Doing more with clients like events or supporting initiatives which matter to them- solidifying the relationship
- Also, especially with the first one, try to enter the US market - can do so by merging or organic growth (see Freshfields for this)
- Cut costs internally to remain profitable - law firms, especially now with the pandemic, might look at reducing office space as rents are a huge overhead for firms

If it helps - don't think about law but think about something maybe more relatable like retail - what is happening in that sector to reduce costs/maintain competitiveness etc? Hopefully this will help you to start thinking commercially and see the various things which might translate across to law and get you into the problem solving mindset.

 

[Jaysen]

Great points by @Alice G. This is a very difficult question, but it generally comes down to your understanding of the market, how law firms compete, and how law firms add value to clients. It's also a question where I don't think there's one 'right' answer, it's more about explaining your thought process.

To answer the question in the title, some quick thoughts:

- If law firms can reduce their expenses, they may be able to compensate for the lower income (e.g. they could use tech, so less hours are spent on a particular task, have an associate lead on a particular task rather than a partner, or they could offshore/nearshore work.)
- They could be more selective in the work they take on, focusing on higher-value, more complex deals where fees are less of an issue.
- They could work on building longer-term relationships with clients, so they compensate for a loss of income by generating more work from a client in the long term.

I think this question is different to the one you mentioned in the post about how law firms can stay competitive against US firms. It really depends on what we are focusing on here - competition for what? Being instructed by a particular client? Competition for talent? The elite US firms are more profitable than UK firms, but that doesn't mean UK firms can't stay competitive - for example, by concentrating on winning overseas work and building entrenched relationships in promising markets, attracting better talent who aren't just drawn in by an initial salary (the support of the firm, the lockstep remuneration etc.), or by adding value to clients based on their expertise, experience in a particular domain, and the level of service they provide.

The next question is very interesting. Personally, I do feel we're a long way off from AI being used for complex needs. AI may be useful for basic tasks and work that can be automated, but I don't see this being a major threat to profits any time soon - clients will still need lawyers to manage transactions, advise on the legal issues, and provide a source of certainty. I would say I don't know much about this area though, so take my thoughts here with a pinch of salt.

When it comes to the big four, I think it really depends on which firms we are comparing them to. Yes, they may be a threat to the firms that are doing fairly low value/mid-market, commoditisable work, but at this point I don't see them being a threat to the firms at the top of the market. At the top end, clients will still value their prior relationships and want to go for the firms with the best expertise.