Cost Recovery Strategies in the Hybrid Era: What Works and What Doesn’t

Law firms have long relied on cost recovery models to recoup expenses for administrative and operational services. However, the post-COVID hybrid work environment has significantly altered cost structures, requiring firms to reassess their approach to billing recoverable expenses.

Shifting Cost Recovery Trends

Recent data from Mattern’s 2023 Cost Recovery and Hybrid Law Firm Operations Survey highlights critical trends:

• Decline in B&W and Color Copy Recovery: Firms saw an increase in recovery attempts, yet client pushback remains high.

• Decreasing Legal Research Recovery: Net realization for legal research charges has dropped over recent years.

• Increased Recovery for E-Discovery Services: Some firms have transitioned to billing e-discovery as a professional fee rather than as a disbursement.

• Soft Cost Realization Decline: Soft cost realization has dropped significantly since 2018, with a billable ratio for copies, prints, and scans now at 43%, compared to 77% in 2018.

Hard vs. Soft Cost Recovery

• Hard Costs: Expenses such as court filing fees and outsourced litigation support remain widely accepted by clients.

• Soft Costs: Expenses like printing, research, and administrative tasks face increasing resistance. According to a 2023 ILTA survey, a significant percentage of law firms still attempt to recover traditional soft costs, but more than half report facing increased client resistance. (Source: iltanet.org)

Strategies for Improving Cost Recovery

• Transparent Billing Models: Firms that bundle costs into fixed-fee arrangements see higher realization rates.

• Alternative Recovery Models: Charging litigation support on a transactional basis can improve recoverability.

• Educating Clients: Firms that clearly justify administrative costs experience less pushback.

• Hybrid Cost Allocation: Some firms are integrating soft costs into hourly rates rather than billing separately, reducing client objections.

Cost recovery remains a challenge, but firms that adapt their approach can mitigate revenue loss. By re-evaluating billing structures and implementing transparent pricing models, law firms can better navigate the complexities of the hybrid work environment.