Three Ways To Combat The Effects Of Inflation On Your Law Firm

In their 2022 Legal Trends Report, Clio noted that for the first time since 2019, Consumer Price Index (CPI) growth outpaced the growth of law firm rates. From the first spike of inflation in June of 2021 through the publication of the report in November of 2022, the difference between the CPI and the average law firm’s hourly rate was three percent.

Now, three percent doesn’t sound like a lot, but over the long term, if law firms don’t adjust to this disparity, that three percent will start to add up. While inflation of these levels might abate, deflation doesn’t happen very often, so your unadjusted rates may never catch up to this spike.

Every American business struggles against the rising tide of inflation. But how can law firms adapt? In this blog, we’ll offer three strategies to combat the effects of inflation on your law firm, without just working yourself to the bone to make up the difference.

Raise Your Rates

The most straightforward answer to inflation is simply to raise your rates. If you’re making three percent less because of inflation, it stands to reason that you can just raise your rates to make up the difference.

Like any other economic decision, it’s a little bit more complicated than that. The industry standard of raising rates is three to six percent annually, in order to keep up with the regular inflation rate. But Clio’s analysis already factors in that average rate raise; a firm would have to raise their rates an additional three percent to keep up with the spike from 2022.

There is a significant potential downside, however. In the same way that your dollar has less purchasing power, your potential clients’ do too. If your rates go up too much, too fast, you could price out a significant number of clients.

You might think, if everyone raises their rates, then you’ll still be competitively priced. But your competition might not raise their rates. They may think that by staying slightly lower than the attorneys around them, they can make enough money to make up the difference. Or, perhaps they’ll be implementing one of the other strategies we’ll be discussing in this blog.

Either way, you can’t count on your competition to back you up. If you raise your rates and they don’t, you’ll drive leads who are shopping around away from your firm.

Lower Your Overhead

If you don’t want to raise your rates, or want to supplement that strategy with another, you can lower your overhead instead (or as well). This is kind of like attacking inflation from the other side of profit; instead of increasing the amount of money coming in, you’ll be trying to reduce the amount of money going out.

One great place attorneys have recently been cutting down on overhead costs is in real estate. With the rise of remote work in a post-COVID world, businesses of all kinds have found that there isn’t as much of a need for in-person office space as there was before.

Learn more here about making the switch to a remote law firm.

Even firms that are keeping physical offices can downsize. Ask yourself: Do you really need all that space if you’re working from home half the time? Do you need a second conference room if most of your depositions are taken remotely anyway?

Of course, this kind of calculation is more nebulous than rate-raising. Depending on the size of your firm, some of these expenses can get written off come tax season, making the actual amount of overhead you need to cut much more difficult to calculate than a simple three percent rate raise.

In addition, running through all of your firm’s expenses and determining where you can make cuts is a time-consuming project, even if it is a worthwhile one. Attorneys have busy schedules; it’s much easier to take a few hours every quarter to make cuts than it is to find a few days to make one big, three percent cut.

Make Your Firm More Efficient

If you’re not interested in raising your rates, and you can’t spare the time or the office space to lower your overhead, then you can always put effort into making more money without working more hours. It sounds too good to be true, but by working to make your firm more efficient, you’ll be able to get more done in your usual workday and bill more hours to your clients.

By delegating tasks you don’t need to handle, you can free up time to do the work only you can do. Easily delegatable administrative work, for example, can drain your most valuable resource: your time. Likewise, phone handling can be a huge time sink for law firms. Studies show that lawyers spend 1.1 hours a day on the phone with their clients, and that’s not even counting the amount of time spent speaking to prospective clients. Add those hours up, and you’ve got a big inefficiency leaking valuable time that you can easily cover up with smart delegation.

On a similar note, if you find you could use more work, you can always increase the amount of money coming into your firm by focusing on raising your lead capturing rate. Improving your legal intake process, for example, is a great way to make your marketing more efficient.

In the previous two sections, we listed potential pitfalls for the strategies we discussed. In this section, we’ll do no such thing; it’s never a bad thing to turn more leads into clients, or make your time management more efficient.

But it is an investment. Reducing your overhead or raising your rates will make an immediate impact on your bottom line. Investing in your firm’s efficiency has more subtle but no less impactful effects that may take more time to show.

Answering Legal Will Help You Get More Done

Of course, some combination of all these strategies will be your best bet for combating inflation. What’s best for you is specific to your firm, but a small rate increase, a small reduction of overhead, and an investment in your firm’s efficiency will all together be more effective than just sticking to one strategy.

On that note, if you’re looking to raise your lead capturing rate, free up some time for you to focus on your legal work, and lower your overhead, look no further than a legal answering service. Answering Legal’s highly-trained virtual receptionists will take phone handling off your hands.Our virtual receptionists are trained for months before ever picking up the phone for a law firm.

Much like how you might not need an office if you spend most of your time working from home, you might not need a receptionist with our team working for you. Our virtual legal receptionists operate as an extension of your firm, making them the perfect team to delegate your phone answering to if you’re looking to cut down on your overhead.

Learn more about our training process here.

And, with our systems custom-designed for your firm, we’ll be able to up your lead capturing rate too. Our legal intake specialists and highly detailed message taking service will enable you to use your time more efficiently while also capturing more clients. Once your new leads speak to our receptionists, they’ll already feel like they’ve hired your firm, and will be much less likely to shop around.

Read more about our legal intake process here.

Make your firm more efficient and effective with our legal answering service. Click here or call 631-686-9700 to sign up for our free trial. For a limited time we’re offering firms that sign up with our service their first 400 minutes free.