Over the past several years, I have noted that large firms continue to raise their standard rates while smaller firms have raised rates modestly, if at all. At least part of the reason is that big firms have higher cost structures, but they also have a world view that their legal services are not commodity services. Smaller firms, have lower cost structures, but seem to view their services as commodities and, therefore, more price sensitive.
I have urged smaller firms for some time to raise their rates and do it in light of the value they provide to clients, not in response to perceived economic trends. However, now comes this post from the Harvard Business Press to raise rates and raise them now. Driven by the rapidly escalating cost of energy and other commodities, all businesses--including law firms will be squeezed. It is best to get ahead of the curve so that if the current economic trends continue your firm will have raised rates and can better withstand cost increases. Those increases will be magnified further when employees begin seek higher pay increases to cope with their own rising household costs.
Raising rates is part art, part science, and must be accomplished with open and direct communication to existing clients, especially those with open-ended engagement agreements. Many firms tend to want to only raise their rates of new clients; however, with new clients, it often takes six months or longer to have any impact on cash flow. Now is not the time to be timid.