Pricing improvement initiatives in law firms are unfortunately often characterised by confusion and indecision over why the initiative is required, what the initiative is intended to achieve and therefore what it should look like.
The reason for this is that there are two ways in which to view the pricing function and pricing activity in a law firm; as a standalone and insular activity confined to what you might call, ‘the home straight’. That is the interaction between partner and client or perhaps the bid team and procurement.
The other way to conceive of pricing is not as a function but rather, as a mindset. One that goes to the heart of the firm's culture, ethos, brand and reputation, delivery systems and the way in which it views its relationship with its clients at a DNA level.
If this all sounds a bit existential and flaky, bear with me. If pricing is viewed as a standalone activity, that will often manifest itself as a request from a firm to "come in and do a bit of price negotiation training". What is customarily envisaged is 2 to 3 hours of CPD. Not to suggest that this is a waste of time, but the real question is, ‘what do we want to achieve through such an exercise?’ If the answer is to instill participants with some new ideas and negotiation skills, then that is a worthwhile activity.
Unfortunately, it in no way contributes to the imperative for a firm to answer questions such as;
- How do we demonstrate through pricing that our interests are aligned with those of our clients?
- How do we ensure that all elements of our business practices including pricing make us easy to do business with?
- What does the interface between pricing execution and work stream delivery (process improvement and legal project management) look like?
- How does this help us create value and demonstrate delivery of that value to our clients?
- How do we ensure that our pricing ethos and methodology reinforces the firm's brand and strategic objectives?
All law firms now find themselves operating in a market where there are some brutal home truths that have to be confronted including;
- Supply exceeds demand and is likely to remain so for the foreseeable future
- Overall demand is either static or declining
- The market is cluttered, and differentiation has never been more difficult
- Technical expertise isn't as much of a differentiator as law firms would like to believe
Tinkering with hourly rates and a couple of price negotiation techniques as a panacea to these challenges conjures up images of ships, icebergs, deck chairs and orchestras.
The firms that are getting this right are taking pricing very seriously but are doing so within a much larger context of pricing governance, pricing analytics and pricing execution. Within the framework of pricing execution, the focus has moved to how to profitably deliver the work whilst according primacy to the increasingly non-negotiable demands of clients for price transparency, budgetary certainty and cost/benefit (value) alignment.
Pricing in turn, is in the best firms being seamlessly integrated into the narrative around work delivery, service levels and voluble communication both internally and client-facing.
The rewards in terms of profitability, client loyalty, reputation and differentiation are considerable but a bit of price negotiation CPD just won’t deliver that. Firms need clarity and decisiveness about why a pricing improvement initiative is required, what it hopes to achieve, how it fits with all the other moving parts and what it will look like in practice, otherwise disappointment is assured.