Pricing is a skill...

Nobody wants to fail or likes doing so, least of all highly competitive, risk and failure averse, ‘alpha’ personalities that exist in abundance in our profession. Yet that is exactly what needs to occur if, as individuals and collectively as a firm, we aspire to excelling at pricing in order to satisfy client demands and still preserve and enhance our margins.

I have for years banged on about the need for the profession to reframe pricing as a skill, not simply a mindless administrative function. This is a critical first step to raising the bar. It is akin to the alcoholic who can’t be helped until they accept that they have a problem.

It is only once we reframe the pricing function in our firms as a skill, that we begin to see that in order to excel, as with any skill, many things need to change, including:

• Our lawyers, at all levels in the firm, need to learn amongst other things; pricing theory as a science, pricing psychology, industry specific pricing strategies and tactics and price negotiation skills.
• Firms need to invest heavily in pricing-specific analytics capability to support pricing execution
• Fee earners need specific pricing process flow charts, precedents, templates and lawyer-friendly tools to support pricing execution.
• And last but by no means least, those at the ‘coal face’ must practice, practice and practice some more.

Practice, practice and more practice...

If we accept that pricing is a skill, we must accept that like any skill, only practice will result in mastery. All else counts for nothing without doing the hard yards, part of which by definition means getting it wrong. Anyone who has achieved high honours in sport or indeed any endeavor will tell you that for every brilliant stroke to take out the singles final at Wimbledon or that eagle on the 18th at Augusta to win the Masters, there were thousands of duff shots.

Anyone for innovation? No thanks...!

"We need more innovation around here. We need people to think more creatively and be more entrepreneurial. I've been saying this for the last couple of years, and yet very little seems to be changing. It's very frustrating."

This is a common lament that I hear from managing partners, COOs and others. They will often say that even though their firm is encouraging people to try new ideas, too few were actually stepping up to do it.

When asked how this plays out in the context of pricing failure, I am often regaled with a story similar to the one earlier in this post. Unfortunately, this is all too common in law firms. There's a strong logical need for more innovation efforts, yet they don't happen. The reason for this is simple; it's an emotional, not a logical problem. Innovation efforts are risky and can (by definition) fail. And failure can sting. So if you haven't figured out how to take some of the sting out of pricing failure, you won't get innovation or any improvement in skills and execution.

For example, a mid level salaried partner in the firm’s litigation department, in an effort to better align the firms’ interests with the clients, experiments with a contingent or conditional fee arrangement. It doesn’t work out for the firm - this time. The partner gets a bollocking from the head of department/relationship partner/CFO/FD (or all of them!). Their performance review and pay rise/promotion is put at jeopardy. Are you going to have another crack at that? Not any time soon.

Smart pricing failure

Start by defining a smart pricing failure. Everyone in the firm knows what pricing success is. We recovered our headline rates, we agreed a fixed fee and completed under time, we had a successful CFA.

Far fewer know what a smart pricing failure is — i.e. the type of failures that should be congratulated. These are the thoughtful and well-planned pricing strategies that for some reason didn't work. Define them so people know the acceptable boundaries within which to fail. If you don't define them, all failure looks risky and it will kill pricing creativity, innovation and skill development.

Like it or not, most lawyers, to one degree or another, lack confidence when it comes to pricing; both the development of the pricing strategy and its execution. But have you ever seen anyone get better at something by telling them, “you’re hopeless, don’t make that mistake again?”

Next, have a clear system for reviewing and documenting what went wrong and how it might be done better next time. Share the wins and the losses with colleagues so we can all learn from one another’s pricing successes and failures. But also, don’t be too hard on yourself; you simply cannot win every round. Bad stuff happens. Such is life. Let it go.

It sends a powerful message about what sort of pricing behavior is not only tolerated but actively encouraged in your firm.