Low-balling fee arrangements reach unprofitable rates

A Legal Week/EJ Legal Big Question survey of 100 senior UK-based partners found rampant discounting, which the British refer to as “low-balling.” “In addition, more than two thirds of lawyers (67%) admitted to ‘sometimes’ doing work at unprofitable rates.” (Legal Week, Vol. 7, Sept. 22, 2005 at 4.)

I have heard the typical breakdown of associate billing rates as covering one-third compensation, one-third overhead, and one-third partner profit. If that split is approximately correct, then the discounts on associate rates – to reach an unprofitable level – would have to be on the order of 33 percent.

It troubles me not a whit if sometimes firms accommodate clients with steeply discounted services. There’s no Eleventh Commandment that decrees all law firms should always make money.