It's my money thank you; I'll decide how much...

How many businesses do you know where the employees are given a broad mandate to set the price of the products or services? Would you invest as a shareholder in a business where the profitability fluctuated at the whim of often mid-level or even junior staff?

And yet this is what passes for business as usual in many law firms. It’s not that realisation rates, utilisation rates, and other traditional law firm management metrics and wisdom aren’t important but I see firms devoting time, effort and cost to these strategies, plugging pin-prick holes in the revenue bucket when there is a hole the size of a fist staring them in the face; the wrong people making pricing decisions.

We've got it covered...

Now, as some of you draw yourselves to your full height in righteous indignation, let me anticipate some of the responses, and offer a comment:

• "We have an in-house guideline so we are all on the same page" - (not one of the 200 plus firms I have worked with internationally have had anything approaching full compliance with any internal guidelines; indeed many staff aren’t aware that there are in-house guidelines. In any event, all ignore the guidelines when it suits them)
• "Everything is run past me first" - (if that is really true then you are the firms’ full-time Pricing Manager, you do not have any time to do legal work, and you as rare as a unicorn. The reality is that even good supervisors have very limited capacity to check all pricing decisions by subordinates.)
• "No reason why they [staff] can’t be left to price the smaller matters and I check the big stuff." - (Really? Take basic domestic conveyancing. If your practice derives 20% of its turnover from this work, which is invariably priced by junior solicitors and paralegals, my research would suggest that through not taking more control of the pricing, you are probably losing between £5,000 and £10,000 per partner per annum in revenue and profit.

It is probably not too much a stretch for most partners and law firm leaders to accept that the bottom line could be improved by having much greater accountability of non-partners around pricing.

I know what's best thank you...

A much more problematic issue is the extent to which individual partners should have complete autonomy to decide pricing. The default position for most partners is that they are the best judge of what a particular client should be charged for a particular piece of work. There is no doubt that their perspective, in which context, they are often also responsible for the management of the relationship with the client, is critical.

However, this still begs the question of whether the pricing decision should rest solely with that partner. I suggest not, for the following reasons:

• Pricing is a skill and as such, partners should be encouraged to have the humility and self-awareness to acknowledge where they each sit on the pricing and price negotiation capability continuum. The reality is that some are exceptionally good at it and others are less so. We all know the partners in our firm that charge like the Light Brigade and others who are seen as a ‘soft touch’.
• Clients become friends and friends become clients. With the passage of time, the business edge to the relationship can become dulled, we can lose a little bit of objectivity and it becomes increasingly difficult to bring a truly commercial approach to charging a friend.
• Colleagues can bring a very valuable additional perspective and raise pricing issues to which we were oblivious or which we have already discounted as irrelevant.
• A collaborative internal approach to pricing invariably results in a higher fee than an individual partner would have arrived at; not as the result of a bullish pricing session but rather as a result of a principled, considered and thorough examination of all relevant factors. Several heads are invariably better than one.
• It is much easier to withstand a full frontal pricing assault by a client or procurement if you have taken a team approach to setting and defending a price.

So what now?

The real challenge for partners is not in bringing greater structure to the pricing processes applicable to non-partners, although that has the capacity to produce a substantial and immediate improvement to most of the firms’ financial metrics.

No, the big gains will come when the partnership as a whole comes to the realisation that:

(a) Pricing is a skill; one which some of them are good at and some are very poor at.

(b) Pricing is a skill that can be learned and indeed mastered, but it requires a philosophical commitment and resources. The payback/ROI is however potentially huge.

(c) The law firm that does not equip its people to price work profitably and in a way that meets client expectations will become irrelevant to an increasingly demanding and sophisticated client base and will perish.