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Why More Law Firms Are Tapping Into New Revenue Sources

Aebra Coe LAW360.COM

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Whether it’s Eversheds Sutherland’s alternative legal service provider, Chapman and Cutler’s sale of internally built technology, Dentons’ legal tech advisory, or Allen & Overy’s contract lawyer business, law firms are increasingly tapping into new revenue sources on top of offering legal advice.

BigLaw firms’ plunge into ancillary services and new businesses started as a trickle in previous decades and has become increasingly common in today’s legal sector, where competition from recent market entrants is intensifying.

The Big Four have opened up law firms in Europe and are inching their way into the U.S. legal market via acquisitions and joint ventures, and alternative legal service providers and law companies like Axiom and UnitedLex are growing and grabbing an ever-increasing chunk of work from corporate clients.

While it appears to be accelerating, the trend of providing ancillary services does not seem to have made a dent on the prevailing challenges law firms face when it comes to revenue.

A report earlier this year from Citi Private Bank’s law firm group found that firms increased revenue by an average rate of 4.5% during the first quarter of 2019, despite a slight decline in demand for their services. That revenue bump was made possible by higher billing rates, which increased 4.4% on average.

During the past several years that trend has remained fairly consistent — as demand for law firms has declined or remained static, they’ve often simply raised their rates in order to maintain or increase revenue.

While these new subsidiaries and businesses are taking aim at that model of raising rates to address declining demand, it is unclear whether the revenue they generate is, as of yet, substantial enough to make a meaningful change for law firms.

“I think it is a safe bet that most firms are not yet seeing a tremendous amount of revenue from these ventures on a percentage basis,” said Mark Yacano, head of Managed Legal Services at Major Lindsey & Africa. “Charging fees for traditional legal services is still by far the largest law firm revenue driver.”

While the financial impact may be minor, ancillary services are still important because of the role they play in client relationships, he added.

“In addition to creating [some] revenue to offset the inability to raise rates year over year, firms are expanding into the technology, consulting and services space to deepen their client relationships and, ultimately, protect their core businesses,” Yacano said.

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