There is an inescapable irony in the fact that lawyers spend their entire legal career successfully advocating and negotiating on behalf of our clients, yet most are only moderately effective when it comes to negotiating their own fee.
I'm a great negotiator, really!
There is an inescapable irony in the fact that whether a lawyer is a litigator, or an M&A, finance, banking, family or private client specialist, we spend our entire legal career successfully advocating and negotiating on behalf of our clients, yet many (no, I'm going to stick my neck out here and say ‘most’) lawyers are only moderately effective when it comes to negotiating their own fee.
Many lawyers genuinely believe that because they are good at negotiating on behalf their clients they are also good at negotiating their own fee. Unfortunately, the evidence simply doesn't bear this out. There is a deeply flawed assumption that it is appropriate for all lawyers in a firm or at least all partners to have a large amount of autonomy when it comes to pricing. This assumption is predicated on another equally flawed assumption and that is that all partners are good at pricing.
Yet various partnership responsibilities are typically allocated based on the skills, strengths and capabilities of individuals. You would not dream of appointing a financially illiterate partner to the role of Finance Partner. Why therefore do we tolerate less than optimal pricing behaviour on the part of some partners?
To be sure, there are many lawyers who are superb at negotiating the price. They are however in a minority and at the other end of the continuum, some are appalling when it comes to pricing, are unwilling or unable to learn pricing skills and consequently cost the firm a great deal of unrealised revenue and profit.
Pricing is a skill and so is price negotiation...
In all of my work I have consistently endeavoured to encourage the notion that pricing is a skill, not simply an administrative function. Equally, price negotiation is a skill. As with any skill, you have to understand the academic and theoretical underpinnings, you have to have training in the strategy and tactics and last but by no means least you must practice, practice and practice some more. In fact, if you have read Malcolm Gladwell's book ‘Outliers’, you will appreciate that 10,000 hours of practice is required to master anything.
Why then is this such a challenge for most practitioners? Why has the profession moved from being price setters to price takers? There are many factors but in my view the one that contributes most to poor outcomes is that customarily, and despite a misplaced belief to the contrary, lawyers are often ill-prepared in terms of negotiation strategies and tactics and as a result, they consistently find themselves bringing a pocket knife to the proverbial gunfight.
There are of course levels of negotiation sophistication and complexity. At one end of the continuum, there is the relatively straightforward discussion with a private client. At the other end of the continuum, the practitioner may be faced with an extremely robust/aggressive and sophisticated negotiation involving a highly experienced in-house legal team often supported by in-house or external procurement capability.
At the high-end of the negotiation spectrum, the client is usually well prepared and has an extensive negotiation playbook at their disposal. However, the challenges are by no means confined to these high-end negotiations. Even a moderately sophisticated client only has to use the right body language with their lawyer and make a comment to the effect that the proposed price is unacceptably high and mumble something about the possibility of making other arrangements, to elicit an almost total capitulation by the practitioner; something along the lines of “okay, what figure would you be happy with?"
That's not a negotiation! That's unconditional surrender in the face of the client doing nothing more than a little sabre rattling.
I'm sorry, which part of 'no' did you not understand?
You can do much better than that. The most powerful word in the lawyers’ negotiation arsenal is “no!" Part of the problem is that we have an emotional attachment to the negotiation (for obvious reasons). The client has the luxury of negotiating dispassionately for the most part. That gives them a huge advantage because their outward appearance will often be one that conveys indifference as to whether they give you the piece of work or not. They will therefore continue to push and push to see how much cheaper they can get it for.
Often, there is no doubt in the clients’ mind that they want you to do the work. They do not want to go anywhere else but if they can get it for less than they will do so. Why wouldn't they? If nothing else, lawyers need to start saying ‘no’ and saying it a lot sooner.
As I write this, I can already sense some of the adverse responses; “that attitude was fine when there was a lot of work around and no one was too concerned about price. It's not like that now. It's highly competitive, there are too many firms competing for too little work and if we don't undercut our opposition, we won't get the work".
Best of luck with that strategy, have fun racing one another to the bottom.
The profitable lawyers of tomorrow...
No, the lawyers that will not only survive but prosper in the current extremely challenging trading conditions will be those that are savvy enough and perhaps humble enough to accept that a new skill set is required and that it is a case of back to the drawing board and back to the classroom.
The successful firms of tomorrow understand that pricing and pricing negotiation are both essential skills. Firms unwilling to invest time, effort and cost into the single most important factor impacting profitability will increasingly be left behind, irrespective of any other strategies they may successfully deploy around marketing, business development and so forth.