The road to hell is, so the saying goes, paved with good intentions. Firms often know that pricing is something that they need to address, or at least would benefit from addressing but aren’t quite sure where to start. Managing Partners and people in senior management roles often bemoan the fact that they have had a couple of attempts at implementing change from within but have been met with indifference if not resistance. Sometimes there is an awareness of the importance of the issue but it hasn't yet floated to the surface of firms' priorities list.
So, if pricing and profitability have floated to the surface for you in 2016, where might you start?
There are broadly speaking three areas you need to tackle; the list under each heading below being anything but exhaustive, they are:
Pricing governance and policy:
The firm needs to debate and reach a consensus on such things as;
- A shared and consistently implemented approach to pricing
- Pricing policies that are well understood and universally enforced – for example do you prohibit colleagues in different disciplines from committing others to pricing arrangements on a project without discussing it with them first?
- Do we have strong pricing leadership in the firm – 'Law Firm Pricing Leadership: Shoot Someone Occasionally'
- Do we as a firm have a preoccupation with turnover as opposed to profit? Which is more important to us and why?
- If you have international offices, is there a coherent strategy to pricing – 'Necrotising Fasciitis: The International Law Firm Pricing Dilemma – Part 1' and 'Part 2'.
- Price and market position disconnect – most firms do not understand that price is a powerful proxy for quality. Firms claim a certain market position vis quality of advice and service and then price below that, thereby undermining the message.
- Poor or non-existent triaging and ROI assessment of RFPs – 'Keep Your Powder Dry – The Hidden Cost of RFPs' and 'Trophy' Clients: Essential or Essentially A Pricing Pain in the @%$#
- Poor or non-existent induction training on pricing – the blind leading the blind?
- Do you have a strategy for increasing prices in 2016, other than the banal and asinine annual rate review letter – 'Time To Increase Prices: I Forget, How Do You Do That Again?
- Are our pricing, marketing and BD efforts synthesised? The Vital Role of Pricing in Law Firm Marketing & BD Efforts
Pricing Analytics & Reporting:
- Practice management software has historically provided plenty of data, but data on its own is largely useless unless it also provides actionable insights – 'Pricing & Analytics: Houston, We Have A Problem'
- Is your firms' approach to pricing one that treats it as a science or a dark art? Pricing Power: The Dark Art
- Fixed fee arrangements in particular suffer from high write-offs and poor realisation rates due to lack of historical analysis
- Any firm serious about utilising contingent or conditional fee agreements must invest in proper analytics capability, and not simply something cobbled together in an Excel spreadsheet
- Misaligned reporting dashboards – 'Pavlovian Pricing & Meritocracy Structures'
Pricing Skills, Resources & Pricing Execution:
- Pricing: Do you see it as an administrative function or a legal practice and law firm management skill? – 'Value Pricing – Capitalist Acts Between Consenting Adults'
- A broad lack of price negotiation skills and a lack of awareness or understanding of the many pricing strategies and tactics available to lawyers results in pricing that is often a poor 'fit' for the client and/or the firm.
- A lack of pricing collateral, templates and pricing precedents
- Is our approach to pricing still relatively one-dimensional – 'How To Leave Fees On The Table: 21 Things I Must Ignore'
- Do you have a strategy for coping with the increasing involvement of procurement on the client side? Procurement: Friend or Foe? and Procurement Departments Negotiating 'Too Aggressively'?
- Incomprehensible client engagement and pricing documentation is focused on regulatory compliance and limitation of liability but frequently falls at the hurdle when it comes to providing, clarity in relation to clients' most basic questions; "what are you going to do for me, who is going to do it, when will it be done by and how much will it cost"
- Confidence is absolutely critical to good pricing behaviour. Do you set and negotiate prices confidently or from a perspective of fear; fear of losing the client and/or fear of losing the job?
Clearly, these issues can't all be tackled overnight or simultaneously. Which issues are picked off and in which order very much depends on the precise status of pricing in a firm at any given point in time. There simply isn't a one-size-fits-all answer to that question.
Before riding off in all directions at once therefore, it can often be helpful for firms to do a pricing 'stock-take' first. "Where are we currently with your pricing? What resources do we have? What are we good at in the pricing space and where are we doing poorly? What parts of the firm are doing well on pricing and which areas are struggling? Why?"
This kind of candid stock-take can help to provide a solid platform for further decisions about pricing.