76% of big firms -and counting- employ a pricing officer according to an ALM Legal Intelligence survey. More and more firms recognize that they need help pricing their services: Clients today not only want discounts but other non-hourly fee arrangements.
Pricing experts are analysts who sort through the firm’s internal data and practices. They are tasked to determine the actual cost of delivering a particular legal service and calculating a price that reflects the value to the client and a healthy profit for the firm.
Unfortunately, many firms’ billing systems were not set up to knowing their own costs – a highly questionable practice from a business point of view. The goal was to collect money “for services rendered,” not necessarily to capture information. The big challenge for pricing offers is hence retrospective analysis, being able to put price tags on past matters.
Going forward, says Aric Press in his write-up of the survey, this is changing: many firms have (some) metrics in place. They are diligent about collecting time and task records so that they know how, where and when their lawyers spent their time.
Aric Press reminds that “the value of work can’t simply be measured by hourly rates, that profit margins are a function of costs and not tradition, lawyers will end (OK, diminish) their obsession with the top line.” He predicts a change in the power, pay, and portability of partners, and an increased focus on what constitutes value for the client.
It is already happening: more and more firms impose discipline on their partners’ billing rate. This practice practically kicks some partners out of the firms as their clients are not willing to accept the new higher rates. What’s more, partners appear to have less influence on pricing in general: According to the ALM survey, only 32% of firms reported that the lead attorneys on a matter has one of the “final says” on its pricing. The bigger the firm, the less likely the lead partner on the matter had a final say on pricing.
Pricing directors also increasingly negotiate directly on price. For many firms, this is a defensive move to client who brought in their procurement specialists. Negotiating with procurement on price is an uphill battle for anyone not fluent in metrics and analytics.
Aric Press also reminds that it’s not just about what partners charge, but about how they do their work. Project management along with new pricing policies is hence du jour for the majority of the responding firms. Partners will have to conform their work to firm-normed processes and understand what the client sees as value.
To get the complete survey results, click here.