It is trite to observe that the environment in which law firms and barrister's chambers are now required to operate is fundamentally different from what it was even five years ago, let alone when compared with what were, in hindsight, relatively halcyon days prior to 2008.
The global market environment
The best that can be said about most of the markets in which firms operate is that they are comparatively flat, with capacity almost universally exceeding demand and overall fee earner productivity declining.
No country or market has a monopoly on this state of affairs, with law firms in the United Kingdom, continental Europe and the United States all bearing the brunt of this fundamental and irreversible recalibration. Only in parts of Asia, Africa and Latin America has there been a slightly more positive outlook with high-growth economies driving demand for legal services.
The need for most firms to chase a relatively static level of demand and therefore differentiate themselves has led to an increased focus on pricing and delivery.
As margins have come under pressure, so the need to manage the margins has become more acute. 'Near enough is good enough' is simply no longer good enough from either the client's or the firm's perspective.
At its most basic, profitable business is about selling services for more than they cost to produce. When firms' profit margins come under attack, they traditionally seek to address this problem by stripping cost out of the business. This manifests itself in a variety of initiatives - from redundancies and reducing premises costs to process reengineering, outsourcing and satellite production facilities.
Recognising the need to address the revenue part of the equation, many firms have sought to do so through intensive marketing and business development strategies, and the acquisition of more clients and work through organic growth and/or merger.
However, revenue is not the same as profit. Some firms are at last understanding the difference between the two. Pricing sophistication is a potential game changer. It is the only initiative within the law firm management paradigm able to deliver immediate and quantifiable financial improvement from the same clients and the same work.
The importance of pricing
Pricing pressures and challenges for the legal profession have escalated over the last few years. These are the result of economic pressures and regulatory changes, the proliferation of diverse delivery models, better informed consumers, the accessibility of web-based information and resources and the increasing application of disruptive technology.
As a consequence of these continuous developments, most clients now expect:
- 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
- A stronger correlation between price and perceived value
- More risk sharing around fees
In order to remain profitable, competitive and relevant in a rapidly changing legal environment, all lawyers, regardless of where they practice, what size firm or what field they practice in, must rethink their pricing strategies. This innovation process goes well beyond merely tinkering with hourly rates. A fundamental paradigm shift is required.
A sophisticated approach to pricing should have two objectives; the first is to maximise profitability and the second, and equally important is to use pricing intelligently to significantly reduce the ubiquitous tension in the pricing aspect of the relationship between law firms and their clients. The business case is irrefutable.
"Great companies do pricing very well. The link between pricing and profitability recurs both anecdotally and in more detailed analysis. One study suggests that pricing has between two and four times the potential to influence profitability relative to other business levers. Companies that actively pursue pricing as an important part of this strategy typically outperform industry peers on several financial metrics…"
"Numerous studies have confirmed that pricing has a substantial and immediate effect on company profitability. Studies have shown that small variations in price can raise or lower profitability by as much as 20% to 50%... Superior pricing is almost always based on skill. The companies we found that had achieved better pricing all had top managers who championed the development of skills and price setting (price orientation) and price getting (price realisation)…"
MIT Sloan Management Review
Intelligent pricing is no longer in the nice-to-have category of law firm management and operations. It is not even solely a matter of useful differentiation and competitive advantage. Increasingly, it is becoming essential to the relevance and viability of law firms.
"In future, the firms that will maximise their financial returns and just as importantly, client satisfaction levels, will be those that have the skills and tools to be able to provide a bespoke pricing solution for each client on each matter".
The success and growth of Validatum
Validatum® was founded in New Zealand by Richard Burcher, a former practicing lawyer and managing partner with over 35 years' experience, including post-graduate study in pricing-related disciplines.
Since 2012, Validatum® has been based in London, which is regarded by some as the epicenter of change and innovation in the international legal profession. Legal commentators regularly describe Richard, who is Managing Director, as the leading law firm pricing consultant in the world.
Validatum® has grown rapidly since establishing its international base in London. Demand for the company's services has seen our work extend into law firms throughout the United Kingdom as well as Europe, United States, Canada, South East Asia, Australasia and India.
Our consultants are frequently invited to speak at national and international conferences and our research and commentary has been widely published and cited in Commonwealth Law Journal, Global Legal Post, Managing Partner, the Times of London and the Pricing Journal amongst others.
As the need for greater pricing sophistication amongst law firms has grown, our offerings have expanded to encompass a broader range of pricing-related advice, including legal process improvement, legal project management, pricing software and matter management and budgeting platforms.
Research and development is critical to the company's success including obvious inquiry into the state of the legal market. However, we can also learn a great deal from investigation into sophisticated pricing methodologies in other service sectors of the global economy from hospitality to aviation.
This provides a platform for genuine thought leadership and commentary that is designed to continually push the boundaries of pricing knowledge and practice, giving the firms we work with a significant competitive advantage. This extends to not only a more effective response to pricing pressure but also as an adjunct to powerful marketing and business development strategies.
We believe that you cannot be the best unless you specialise, which has made us the world's leading legal services pricing experts. This means we are uniquely placed to guide you towards pricing excellence.