5 trends on the future of pricing legal services

By Richard Burcher

Migration from pricing as an administrative function to pricing as a skill: Pricing is a skill. That’s it. No discussion. Anyone who thinks differently is living in a parallel universe; the one where all that is required to make a good living out of legal practice just has to open the office door in the morning and have a pulse.

Current international legal services pricing best practice requires firms to address three key areas: pricing governance, pricing analytics and pricing execution. Firms need to undertake a highly critical and honest stock take in each of these areas. Most will find themselves wanting in all three, some more or less than others.

Over the last five years, all the other profitability levers have been pulled or are in the process of being pulled; cost cutting, redundancies, mergers, diversification, specialisation, restructuring. The one that has received little or no attention is pricing but many are now realising that it holds considerable promise provided they treat it as a capability requiring commitment and investment. That trend is gaining pace.

Pricing will become a more collaborative process with clients: Clients have made it quite clear that they want to be at the centre of the pricing process, and not be treated as an irritating complication. They want to see from their lawyers:

Real efforts to reduce production costs. In other words, to move away from a cost-plus mentality.

  • More pricing and payment options.
  • Greater involvement and engagement in the pricing aspect of the relationship.
  • Greater pricing transparency.
  • Greater pricing certainty and budgetary predictability.
  • Greater correlation between price and perceived value.
  • Greater risk sharing around fees.

Artificial Intelligence Practice Management/Pricing software: We are seeing a significant evolution in practice management software. Version 1.0 gave us little more than the ability to properly manage the trust account and the general ledger. Version 2.0 gave us amongst other things, better financial reporting capability and online time recording functionality. However, version 2.0 is now woefully inadequate.

What we have now with the next generation of PM software is a much greater capacity to understand, analyse and plan the objective, arithmetical components of a legal project, but this still rather misses the point. There are important elements of subjectivity in pricing that the current software does not come anywhere near dealing with satisfactorily. The ability of the software to analyse subjectivity (an oxymoron?) is a long way off.

The Emergence of Pricing specialists in firms: For the legal profession, a new breed is slowly emerging – the Pricing Manager/Pricing Director. As pricing analysis, policy and strategy becomes increasingly important for firms’ competitiveness and profitability, they are looking for increased expertise in the area. This is proving to be a huge challenge because the skill-set for the role is a rather unique one, falling as it does in a sort of no-man’s land between finance, business analytics, business development, marketing, sales and delivery/performance of the legal service.

There is no shortage of financial and analytical skills in well-resourced firms but what is often missing is the “bridge” between this analytical approach and the subtleties and nuance that frankly only an experienced practicing lawyer can bring to the analysis.

It is often said, and I agree, that pricing is a blend of art and science. Synthesising the art and the science of pricing is where the real alchemy occurs; turning base capabilities into something precious and valuable from the firms’ perspective.

Little wonder therefore that people with that combination of skills, qualifications and experience are like the proverbial “rocking-horse droppings”; thin on the ground.

Polarisation of the profession along pricing lines: The profession, or at least some firms are coming to realise that they don’t have to be and in fact must not try to be all things to all people. They are taking a view as to their position in the marketplace and making a conscious decision to be the Tesco or Waitrose or Fortnum and Mason or Harrods of their market.

This maturing of the profession and the dawning realization that competing on price can not only be soul destroying but financially suicidal, will see much greater polarisation of service level, quality of advice and pricing offerings than the relative homogeneity that still exists in many markets.

This does however require a high level of self-awareness, brutal honesty about capabilities and what the firm has to offer and a clear view of its constituency. Sadly, many have a way to go.

Filed Under: Practice of Law

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