As PwC’s comprehensive 2013 study tells us……"Pricing matters".
Where else in the provision of goods and services could such small improvements have such a profound effect on the bottom line?
If a 2% price increase can deliver an increase in profit of between 5% and 15% then it’s a no brainer why law firms are investing so much in building better pricing relationships.
The knock on effect is that pricing is now an emerging law firm function, worthy of investment in its own right. Without question the ROI potential here is huge.
Those firms that don’t invest in their own pricing ability risk being left behind, losing clients and missing out on opportunities to be more profitable. This mantra is as relevant to mid-sized regional firms as it is to top-flight international giants. Pricing, as a discipline, is here to stay. If you want to maintain your level of profitability and hopefully improve on it in the years ahead, you should be investing now.
The first step is to train up your partners. Forward thinking law firms are already hurrying to book their partners in for Validatum Partners Pricing Masterclasses. This investment in partner training can reap huge dividends, encouraging greater confidence around pricing relationships and the client facing pricing dialogue.
Beyond this, for some firms the logical next step is to invest in and grow a specialist internal pricing capability. This is done not with the goal of excluding partners from the pricing equation, rather to add a greater layer of sophistication across the firm as a whole, to encourage innovation and competitive advantage.
Out of those firms that have developed a pricing capability already, it would seem that a proportion have taken a fluid “suck it and see” approach, getting people in place and working things out as they go along. Sometimes this approach can be a valid one and some highly successful collaborations have begun without a clear route map in place.
The downside to this approach is that it can take much longer for the pricing function to make an impact and also to carve out its own identity within the wider law firm. It also leaves the function open to becoming one that is lacking in talent management and clear career progression opportunities - a very common complaint amongst pricing professionals.
So how can you structure a successful pricing team if you haven’t got one already?
This is a short article, so it won’t provide a full checklist but let’s look at some helpful basics:
· Senior management buy in. This has already been discussed in detail elsewhere (Look Before You Leap). This should be a given and without it the new initiative has no chance of success.
· Clarity as to expectations, both in terms of scope and also ROI. This one may take some time and some external guidance to avoid making costly mistakes. Whilst the financial benefits may be significant, there isn’t a “quick fix” here and the business needs to understand what can be achieved and the likely cost of doing that. For example, what software will be needed and what ongoing investment will be required? Validatum provides bespoke support to businesses grappling with exactly these issues through it’s Pricing Support Retainers.
· An incisive recruitment strategy. It sounds obvious but you want to build your team in an ordered fashion. Building a function from scratch offers you a one off opportunity to design a team structure specifically to suit your requirements. Having done that you should be prepared to devote time and investment into a recruitment process that will thoroughly investigate a candidate’s suitability for any given role in the function. In the early years your pricing team is likely to be fairly compact. If you’ve only got a small bowl you haven’t got room for any bad apples.
· A fit for purpose Competency Framework. This needs to be specifically devised for the pricing function, rather than a quick re-hash of something already in use by the finance or BD team! Pricing is a very distinct discipline, requiring competency in a complex range of hard and soft skills. This framework will prove invaluable to your recruitment process (above) too.
· Team ownership of the Framework. Going forward, enable the pricing function to update and refine it’s own Competency Framework on a regular basis. You are aiming to create an internal culture of continuous improvement within the team. A clear and aspirational route map will help to identify and grow and talent.
· Good internal reporting lines. A perennial question in the pricing field is where should the pricing function report in to? The best solution will depend on the key goals for the pricing team. In “Pricing and Human Capital”, Stephan M. Liozu provides an excellent analysis of pros and cons of the main options. Whatever the reporting lines decided on, there will need to be adjustments made internally to accommodate the arrival of this new business function. Here there should be a focus on good communication with those existing teams that will be impacted by pricing’s arrival.
Six bullet points as a starting point are all we have space for here. Clearly though the topic is a more complex one, worthy of further debate. If you would like to explore matters in more detail, or have any experiences to share, please don’t hesitate to contact Emma Potts.