Law firms, forever focused on profits, are ignoring the fundamental laws of supply and demand. Their job—their very existence—is based on a business model in which they supply a service to clients for a price. When client demand for outside counsel rises, that’s good for a law firm’s bottom line. But what happens when the fees clients are charged get too high? This year, law firms implemented some of the highest billing rate increases in recent memory. And in 2024, analysts say firms are likely to push through similar increases, with an average standard rate increase of between 6% and 8%. Lest you think this only refers to a few top firms, note that in 2023 the upper echelons of Big Law actually went further. About 15% of Am Law 100 firms increased their rates by between 10% and 20% last year. To be sure, law firms are contending with inflation and higher interest rates, as well as rising costs for talent, insurance and general overhead. And they want to protect their profits and continue to grow. But how far can they go before they are hit with client pushback? The question for law firms, in economic terms is, how elastic is the demand for their legal services? Clients consider a number of variables when they decide which law firm to hire—or whether to use outside counsel at all. And when a change occurs in one of those variables, the demand for external legal services may also shift. With tighter in-house budgets, a willingness by general counsel to bring more work in-house, the increased availability of alternative legal service providers, and the rapid sophistication and adoption of artificial intelligence, the variables that clients consider when hiring outside counsel are changing. General Counsel have more options than ever. | 