This article, co-authored by Positive Pricing’s Stuart Dodds and Chief Value Officer of Goulston & Storrs, Christopher Ende, first appeared in Thomson Reuters Legal Practice Management. The key takeaways are summarised here.
As a raft of recent legal news stories testify, 2020 was nowhere as cataclysmic to the legal industry as feared — indeed, the opposite being true for many law firms that saw above average revenue growth of 5%.
So, what did those firms do “right” and where is the opportunity to improve when it comes to the pricing of legal services? To help us frame our journey, we took a step back to reflect on our respective experiences over the last year and engage with our peers and colleagues from the Legal Value Network. Then, we used as our basis the six key steps we originally outlined near the start of the pandemic.
Two things law firms did very well
1. Proactive & Empathetic Pricing Conversations
Law firms proactively and empathetically held open conversations with their clients (both at a business and individual level) about how they could help them through the crisis. They put forward a range of options including:
- reviewing ongoing work
- reprioritizing and possibly implementing different payment terms
- time-bound fee concessions
2. Managing Discounts
- Any rate discount applied during the pandemic was both temporary and conditional.
- Terminology was also important during the current crisis, with any discounts being referred to by many law firms as “temporary fee relief” or something similar, rather than a discount on fees.
- Some clients removed prior volume discount structures to allow their in-house lawyers to have greater certainty around how their legal spend accrued throughout the course of hourly matters. This also allowed their legal teams to more proactively and effectively understand and manage budgets and adjust direction as necessary.
Two things law firms did relatively well
1. A greater focus on fiscal hygiene
Many law firms took the opportunity during the pandemic to improve fiscal hygiene internally, with much greater scrutiny of cashflow. Tactics included:
- quicker time-recording
- more regular interim billing (either by phase or work- or time-period)
- a heightened focus on collection efforts (in part, mitigating the end-of-year scramble to collect.)
- a related focus on minimizing expenses
The potential for long-term gain is significant and firms should commit to ongoing improvement of these processes.
2. Reviewing & selectively increasing rates
Here we observed two distinct camps — those firms that were fortunate enough to have increased their rates prior to the onset of the pandemic, and those that were caught slap bang in the middle of it.
Multiple surveys highlighted that the Am Law100 firms had their biggest rate increase in a decade (at around 5% to 6%, on average), with a high number of other firms not far behind, although many had implemented rate increases as of January 2020. In the U.K., increases were typically more muted at 3.7%, reflective of their later rate review cycle, which often occurred in either May or July. A positive development here is that many firms were willing to have the appropriate rate conversation with their clients.
Encouragingly, we also witnessed a greater willingness of many law firms to review their current client pricing and begin to proactively differentiate their rates in recognition that not everything either costs or is worth the same.
Two things law firms still need to add to their ‘to do’ list
1. Segmenting clients based on likely pricing behaviour
While many law firms have implemented a client segmentation program based on themes such as client revenue or industry sector, very few have undertaken a pricing segmentation program.
Segmenting clients based on their likely pricing behaviors allows firms to be prepared with already crafted pricing approaches prior to the inevitable client request. Firms can then proactively identify ways to both help clients while mitigating any potential impact to the bottom line. In our conversations, we know of only one firm that conducted an intentional pricing segmentation exercise during the crisis, allowing the firm to successfully tailor pricing approaches across its client portfolio.
2. Reviewing & adapting practice group pricing
Very few firms we spoke to actually took the time to refine and establish practice group-specific pricing strategies during the period of the pandemic and beyond. This is a strategy that is worth the effort and encourages greater consistency of approach, messaging, and management of firm investment.
Such pricing strategy is relevant for both those practice areas that flourished during the crisis and those that felt more pressure. Encouraging more frequent discussion of pricing themes as part of your firm’s practice group meetings can be a simple, but strong, start.
Keen to learn more?
- Read our case study Where to Start, which outlines how we helped one firm increase its profit by 18%.
- Learn six practical steps to set your pricing strategies during tough economic times in our article Law Firm Pricing Approaches in Challenging Times
- Talk to us about how we can help your firm hold pricing conversations with your clients confidently.
This article appears in full on Thomson Reuters