Law Firm Rate Negotiations: FAQs and Resources

Every year, as summer ends and fall begins, so does one of the most frustrating, time-consuming, energy-sapping tasks performed by in-house legal teams:

Annual rate negotiations with law firms.

Depending on your background, you may not know the best practices for navigating rate negotiations with law firms. This is especially true as the legal operations profession grows, attracting business professionals who may never have been exposed to the unique interactions between corporate legal departments and their law firms.

You may have a few firms to negotiate with. Or you may have hundreds. 

What are firm rate negotiations?

Law firm rate negotiations is the process of negotiating agreed-upon hourly rates used by law firms when invoicing work to their client. The rate negotiations process can be incredibly complex, involving negotiations over hundreds of job titles, or individuals, and legal matters.

For example, what rate will the client pay the firm for work done by a third-year associate? What about a senior partner? These rate arrangements, once agreed to, will determine the default billing model in effect for the next year to three years, depending on the agreement between client and firm.

Rate negotiations can be one of the most time-consuming and stressful parts of working in legal operations. The process can take weeks or months for each firm you work with on a regular basis.

7 proven strategies to improve the rate negotiations process

At PERSUIT, we’ve been working closely with in-house legal teams since 2017, including helping many of them navigate the annual rate negotiations process. 

Here are seven best practices we’ve developed for in-house teams as they negotiate rates with their firms.

Note: For an even deeper dive into rate negotiations best practices, see our expert guide: Battle of Rates: 7 Strategies to Survive the Annual Rate Negotiations Process.

1. Choose what you’ll negotiate: Individual rates vs. rate cards

The first decision to make when negotiating with law firms is this: What are you negotiating? There are two common strategies:

1. Individual rates
2. Rate cards

Using individual rates means negotiating a unique rate for each timekeeper. For example, if you work with three timekeepers at a firm, you may decide to individually negotiate new rates for each of those three individuals every year.

When you have a large number of timekeepers or a large number of firms, we recommend leveraging rate cards rather than individual rates. The rate card approach empowers you to negotiate rates for timekeepers by staff level. 

Rate cards are fully customizable to accommodate all billing practices. For example, your rate card might include a single rate for partners, associates, and paralegals or one for partners and another for all years of associate seniority. 

2. Gather benchmark data about your peers

Lack of price transparency is one of the key problems firms face when trying to set their rates. Corporate legal teams also struggle to know what’s fair or appropriate when reviewing rate increase requests.

To solve this problem, there are three places you can gather benchmark data to compare rates:

• Industry reports
• E-billing platforms
• Your firms

Industry reports

Organizations such as PricewaterhouseCoopers (PwC), Citibank, and Valeo have created reports that show anonymized data about how firms are pricing their services 

The reports aren’t cheap. One report we reviewed recently sold for over $40,000. But having benchmark data to know the trends happening with legal pricing can be worth far more than the cost. 

E-billing platforms

E-billing platforms sometimes provide benchmark data from their platforms. You usually need to be a customer of the e-billing service to have access to this data. 

Your firms

If you work with a lot of firms, the rate increase requests you receive each year can act as their own natural benchmarking service. 

3. Establish a panel

Love them or hate them, panels change the conversation you’ll have with firms when negotiating rate increase requests.

Without a panel, a corporate legal team is forced into a 1-to-1 negotiation, with only the firm’s prior rates as a benchmark. Corporate legal teams in 1-to-1 negotiations don’t have as much leverage to push back against rate increase requests. Why would a firm reduce the rate request when there’s no competition? 

Creating a panel, by contrast, creates competition.

Establishing a panel or refreshing an existing one means you’re negotiating with multiple firms at the same time for a spot on the panel. Because of this competition, firms are often willing to negotiate better rates. 

Panels also reduce the number of firms your team works with, reducing the administrative burden of managing so many relationships. 

4. Negotiate a volume discount

Volume discounts are a classic “win-win” strategy in business.

Just like buying the value size box at the grocery store, if you send more work to a firm, it’s natural to expect a discount on rates in return.

Standard discounted rates we often see with corporate legal departments range from around 5% up to 30% or even higher. Volume discounts often kick in on top of the standard discount — often once a firm has billed beyond a predetermined volume of spend. 

Discounts are often cumulative across the entire relationship a legal team has with a firm, an additional selling point for both clients and firms.

The firm is incentivized to continue to offer discounted rates. And the client is incentivized to work with the firm on additional matters — even matters that might not be in the same areas of law where the relationship has long been established.

5. Negotiate the term

Locking in a rate schedule for an agreed amount of time is another way to eliminate the burden of renegotiating rates each year.

Locking in rates for a fixed period of time doesn’t mean you agree to keep everyone’s rate the same. It doesn’t even mean rates have to stay fixed during the team. It means you’re agreeing to a set of billing guidelines to govern the relationship for a fixed period of time.

If you’ve established a rate card, then you already have a framework to govern the relationship.

Locking in the term defines how long you’re willing to work under those rates — including if those rates can change during the life of the agreement.

6. If you’re a VIP client, ask for their best rate

Maybe you know that you’re one of the firm’s largest sources of revenue. If so, you can ask the firm how you compare to its other clients.

For example, if your company is in the 90th percentile of revenue for a firm, that means you generate more revenue for the firm than 90% of its other clients, making you a VIP!

• Here’s what you can ask your firms to make sure you’re getting the best value:
• What is the average discount you give to a 90th-percentile client?
• What is the average discount you give to a 50th-percentile client?
• What is the average discount you give to a 25th-percentile client?
• What percentile am I?

Some firms may not want to share this information with you, but we’ve seen many who will. 

This strategy only makes sense when you know you’re one of the firm’s most important clients. But when you know your company is one of the most important clients for a firm, don’t be afraid to ask!

7. Request freebies and extras

Freebies and extras are another classic negotiating strategy to create agreements that are wins for both sides.

In the context of rate negotiations, many firms will be willing to offer extras such as:

• Legal advice (e.g. 100 helpline hours, 50 training hours, etc.)
• Secondments
• Market research
• Additional discounts on certain types of work

Once you’ve secured freebies and extras, make sure to take advantage of them!

Firms want you to “redeem” your freebies and extras. By doing so, they increase the overall value they can offer you and increase their chances of deepening their relationship with you in the future.