ROSS Artificial Intelligence Helps Boost Realization Rates
Law firms generally track three metrics to measure timekeeper revenue: fees billed, hourly rate and realization. As a general matter, fees billed have declined across the legal profession over the past ten years, from small firms to solo practices. Although individual firms obviously “beat the market” and increase overall demand for their services, the industry average has declined steadily. At the same time, it has become more and more difficult for firms to raise hourly rates. The annual rate increase conversation with clients has never been an easy one, but today clients are very comfortable reminding their counsel that there are many good firms that are willing to compete on price. As a result, annual fee increases have barely matched inflation in recent years.
The Downward Pressures on Realization Rates
Those factors all place a downward pressure on realization rates, the critical measure of how a firm turns billable hours into cash. “Realization” is generally defined as time value (billable hours) multiplied by hourly rates, divided by fees collected. The metrics are interdependent. Some firms have very high realization rates due to very low billing rates. At the other end of the spectrum, some firms will settle for realization rates as low as 80% due to routinely large discounts from high standard rates. Despite efforts by firm management to impose discipline over write-offs, many partners in the upper tier of the business development ranks are quick to cut fees as soon as a major client complains.
In some cases, attempts to increase billable time can lead to reduced revenue. For example, some firms operate with an aggressive time capture philosophy, urging attorneys to record every interaction with a client no matter how small or inconsequential. Staffing decisions also have an impact on realization. When business slows, some partners will hold on to their work to stay busy rather than assign the work to junior attorneys with lower billing rates. Clients will often object to lawyers at the highest hourly rates billing significant time on matters that could be handled by junior lawyers at much lower rates.
One of the biggest downward pressures on realization--a practice that threatens to drive managing partners insane--is the write-down of unbilled time. Some lawyers are reluctant to bill all the time spent on a project for fear that the client will not see the value of the work done and push back on the fees or simply refuse to pay the bill. The danger is that the client’s perception of value may be more favorable than the lawyer’s forecast. The best practice is to isolate and monitor unbilled time in order to limit (or eliminate) the tendency to shave time before it’s billed.
How ROSS Can Stem the Tide and Increase Realization Rates
Everyone agrees on the problems, but we’re often asked how artificial intelligence can boost realization rates. Experience shows that AI dramatically increases the perceived value of legal work by both clients and the firm’s attorneys. Increased perceived value allows firms to raise rates in the face of stiff competition, show value for time billed even under the most aggressive time capture policies and, perhaps most importantly, decrease billing attorneys’ tendency to cut unbilled time.
For example, ROSS users consistently tell us that they find better results faster using our artificial intelligence research platform. That’s because ROSS uses advanced algorithms to find the best cases to support a lawyer’s arguments using intuitive natural language searches. The result is that lawyers can respond to clients’ questions more quickly and authoritatively than they can using other platforms. Their on-demand expertise adds value to the client relationship and reinforces the client’s confidence that their counsel get to the right answer more efficiently. That confidence in counsels’ efficiency greatly increases clients’ openness to the annual fee discussion.
Firms that have replaced traditional legal research platforms with ROSS report that their junior lawyers are more comfortable recording every minute spent on legal research. ROSS helps junior lawyers level up their skills by guiding them to the right law even if they don’t fully understand the overall legal framework or the procedural posture of a case. ROSS does that by reading and understanding the context of cases, not just the key words. A first year associate does not need to be fully familiar with the difference between a 14th Amendment and 5th Amendment due process analysis. ROSS will analyze their query and make that distinction for them. As a result, even the most junior attorneys know that all their time on a research assignment has been well-spent.
The most powerful ROSS effect on realization is an increase in billing attorneys’ confidence that clients will see the value in every billing entry for legal research. Confident billing attorneys do not write off unbilled time. They know that their clients will recognize the efficiency and expertise of the firm rather than focus on what the client might see as unproductive time.
Ultimately, our goal at ROSS is deliver confidence: confidence that our users are giving the best advice to clients, making the best arguments in court and strengthening client relationships by exceeding expectations on time and on budget. So give ROSS a try and let us know how it improves your practice.
Charlie von Simson is a legal subject matter expert at ROSS. He practiced law for twenty years before running away to join a startup.