With Validatum Pricing Espresso® we aim to bring you your regular pricing 'shot' - the best, most interesting, thought provoking and informative material we can find globally which will be of interest, relevance and help to you in your legal services pricing challenges. [Note: we don't always agree with the content of others that we post but the philosophy of Validatum Pricing Espresso® is shared perspectives, not a personal 'soap-box']
Observations from the Other Side…
· Why does procurement send out 48 page tender documents with questions completely unrelated to the services and give us 2 weeks to respond?
· Does anyone actually read the responses?
· Why do they want 3 years’ financial accounts?
· Is this the best clients can do to choose a legal firm? Read more...
Law firm rates rising at fastest pace since 2008 recession
Overall law firm rates are on the up with average year-over-year lawyer rate increases reaching their highest levels since 2008.
Larger firms are maintaining pricing power as rates rise. Among over 350 factors tested in a new report, law firm size was the single largest driver of law firm rates. It was also determined that rates at the associate level are rising faster than at the partner level. The average year-over-year rate increase for associates was 7.3 per cent, more than double the 3.6 per cent rate increase for partners. The research revealed, however, that rates for first year associate were flat. Despite the rise in overall associate rates, the average rate that a first-year associate billed has not changed. As a result, rate increases among more tenured associates are even higher than for associates overall. Read more...
Why Billable Hours Are Like Clickbait
People like things they can count. So those things become important.
Imagine, if you will, two people who write online columns. The first columnist is good. He (or she) has quality working in his (or her) favor. This columnist is smart, regularly says intelligent stuff (thus distinguishing himself from, say, yours truly), writes with flair, and generally improves the state of human knowledge.
The second columnist is bad. He (or she) has nothing to say and takes too many words not to say it. But the second columnist has no shame and attaches enticing headlines to his (or her) dreck: “Pictures of actresses that you just won’t believe!” “The three simple tricks that reduce stomach fat!” “Four lies guaranteed to make you a millionaire!” “Five amazing tricks to improve your sex life!” Read more...
Another Biglaw Firm Raises Billing Requirements In The Wake Of The Pay Raise
How are law firms paying for the Great Associate Pay Raise of 2016? Anecdotal evidence suggests they’re taking several different approaches, sometimes in combination.
A firm can make clients pay for the raises, by raising rates. It make partners pay for the raises, by taking the money out of partner profits (let’s see if we notice this when the new Am Law 100 rankings come out next month). It can make support staff pay for the raises, by conducting staff layoffs (and taking other steps to trim expenses). And it can make associates pay for the raises, by making them work hard(er) for the money.
Wilson Sonsini — which raised associate salaries last June, a little on the late side (after peer firms like Cooley and Fenwick & West had raised) — is now raising its billable-hour requirement. A disgruntled tipster reports: Read more...
Dallas' Increase in Lawyer Billing Rates Among Highest in Country
Billing rates charged by firms in Dallas increased by 6.8 percent in 2015, compared with 2014—an increase second only to New York when considering the 25 U.S. cities with the highest volume of legal work. Rates increased by 7.9 percent in New York during the same period.
According to the 2016 Real Rate Report, issued by CEB consulting company and Wolters Kluwer NV’s ELM Solutions, which helps in-house legal departments manage budgets, hourly rates in the United States increased 5.4 percent in 2015 compared with 2014, boosted by an average 7.5 percent increase at firms with more than 1,000 lawyers.
The average billing rate increase of 5.4 percent in 2015 is the largest increase since 2011, when the average increase was 5.3 percent, but less than rate changes of more than 8 percent in years before the 2008-2009 economic recession. While billing rates increased, the 2016 Real Rate Report finds that demand—the total hours billed by each firm—declined 8 percent from 2013 to 2015. Read more...
South Florida's Billing Rates Remain Flat As Small Firms Get More Than Half the Work
Lawyer billing rates in the South Florida market grew more slowly than in most large markets through 2015, and a larger percentage of the work went to smaller law firms, according to an analysis of legal invoices from nearly 100 companies.
Legal management firm Wolters Kluwer ELM Solutions compiled a report showing that corporations used lawyers from smaller firms in the Miami area more often than they did in other large markets.
The report also showed that larger firms have higher billing rates, while the smaller firms offer more competitive prices. Read more...
What can be added to the hourly rate debate?
In short, nothing. There are HUNDREDS of posts on this topic on LinkedIn by business experts, and even one or two by lawyers. All I can attempt to do here is distil the key points as put by both sides, sum up and add my own tuppence, which has almost certainly been said by someone else at some point. Here we go.
Debate? There isn’t one. The hourly rate is dead, yet it thrives as a living zombie. Despite its many death-throws and well-established total unsuitability for purpose, it resurrects itself and reigns supreme at your law firm. Clients and lawyers suffer daily in its strangling grip. The hourly rate is a religion which defies all logic, yet we don’t question why its taken over our lives. Read more...
Team Management Skills: Top 3 Pricing Mistakes & How To Avoid Them
After combing through hundreds of assessment transcripts and interview notes with pricing professionals, we find many pricing managers struggle to inspire others to utilise their potential to drive profitability because of 3 defining characteristics:
- A fixed, technician’s mindset
- A lack of presence
- A reactive, micro-management style
'Not a single client satisfied' - report exposes how law firms fall short
New research claims to have unearthed ‘unambiguous evidence’ of a flagrant disconnect between large law firms and their clients.
Clients said they looked to law firms for solutions to business problems, while the firms saw their role as just providing advice - with clients required to convert this advice into solutions.
The research, by information provider LexisNexis, also uncovered differences in expectations of service quality. While lawyers strive to provide the best advice they can, many clients want advice that is ‘good enough’. Read more...
Value is in the eye of the beholder
Whether you think value pricing is a science, a dark art, or just more management claptrap, it is a client-driven trend few law firms will be able to avoid for much longer.
Defining value is like trying to nail jelly to the wall. I’ve have heard value pricing variously described as ‘what the client will stand’, ‘making up a figure’, ‘hourly billing plus some more’, or ‘what the client thinks it is worth’.
That’s an approach that lacks honesty and integrity. It also completely misses the central point that legal services pricing should be about the optimal alignment of the clients’ perception that they have received fair value and the lawyers’ perception that they have been paid properly. Read more...
Billing and Fees: The Trends, the Feuds and the Future
Money. Ain’t it grand?
There are lots of reasons to be an attorney—upholding the Rule of Law, representing the less fortunate, playing cerebral chess with opponents. All worthy pursuits.
But there’s no denying that a big allure of the profession is moolah, cash, bread, coin, remuneration.
In this Instant Insights collection, we show you billing trends in specific markets and industry sectors, how clients are changing the billing game, and the fights that break out over doling out the dough. Read more...
How to Track Collections Versus Utilization Rates
Knowledge truly is power when it comes to KPIs, particularly when they impact firm profit. It is important to match individual timekeeper goals with the firm’s cash requirements. It’s hard to measure and reward profitability if there’s no accountability once the hours are recorded. Plus, billings are meaningless until collected. Therefore, you should focus on hours or effort that can be recorded, billed, and ultimately collected.
To illustrate where a disconnect might occur between a timekeeper and your firm’s financial goals, we have an attorney—Paul—who is recording hours and billing well above 100% for 2016. Paul believes that he should be receiving a bonus at year’s end based on his 107% utilization rate calculation.
The traditional utilization rate is calculated as the hours recorded over available hours—in Paul’s case, 2000. In this example from my small law KPI book, some of Paul’s billings were written off as shown below. Therefore, the total billings converted to cash were 93.36% of the 2000-hour target which is more than 13% less than the 107% recorded. Read more...
McKool Smith MP on Market Doldrums, Winning on a Budget and Why Alternative Fees Aren’t the Answer
These are not the best of times for the business of litigation. Multiple reports in recent years have painted a similar, lackluster picture: the market is stagnant, with clients shying away from bringing new suits, keeping more work in-house and pushing back hard on costs.
What’s a firm to do? (And don’t say “alternative fee arrangements.”)
I had a chance to talk about this with McKool Smith managing partner David Sochia, an accomplished litigator based in Dallas who has taken on the mantle of law firm strategist. Read more...
How is Law Firm Profitability Measured?
In professional services industries, such as legal, the revenue side of the profitability equation is usually easy enough – multiply billable hours for the practice, office, employee etc. by the applicable billable hour rate to determine revenue. This can be measured by fees worked, fees billed, or fees collected [See Part I for more details]. But, how do you allocate costs to a practice, office, or employee to determine if they are profitable?
An important part of calculating profitability is determining how to allocate organizational expenses to fee earners and which expenses to include. Are all costs divided equally by attorney? Should costs vary by location and title? What about marketing costs or secretarial costs – are those divided equally? Many attorneys would say it depends on use of those functions (i.e. “I never use my secretary, my costs should reflect that”, “I draft my own RFP responses and never use the Marketing Team, you shouldn’t increase my cost for them if I don’t use them”). But how do you practically measure that? What about high volume/lower fee practices (e.g. labor and employment) and lower volume/higher fee practices (e.g. employee benefits). Read more...
With Hourly Rates Rising, Report Shows Spotty Record for GC's Cost-Constraint Tactics
Hourly rates are rebounding strongly from the post-recession doldrums and Big Law is leading the way in capturing more money for their time. Nonetheless, overall demand for lawyers’ time continues to fall, according to an analysis released Mondayof actual legal invoices from nearly 100 companies.
In the U.S., hourly rates jumped 5.4 percent between 2014 to 2015, powered by an average 7.5 percent rate increase obtained by those at firms with more than 1,000 lawyers, states a 2016 Real Rate Report issued by consultancy CEB Inc. and Wolters Kluwer NV’s ELM Solutions, which helps in-house legal departments manage their budgets. That was the highest year-over-year increase since 2008.
As has been a common theme since the Real Rate Report was first released in 2010, the size of a law firm has the largest impact on a lawyer’s billing rates—even more than the city in which they practice. Read more...
ALTERNATIVE FEE ARRANGEMENTS
For Law Firms, It's from Alternative Fees to Alternative Business Models
While the legal industry is beginning to appreciate the need to embrace technology, the business models that big law firms and legal departments rely on have stayed stubbornly unchanged by broader market forces.
Dentons and its legal technology incubator Nextlaw Labs hosted a panel discussion, titled “Alternative Legal Business Models,” on April 5 to discuss some of the ways that legal practitioners could and already are reshaping their business structures and billing frameworks to adapt to modern needs. Mary Juetten, Traklight and Evolve Law founder; Dan Lear, director of industry relations at Avvo; and Monica Zent, founder of Foxwordy and ZentLaw, each spoke to a room in Dentons’ Palo Alto office about their experiences navigating new terrain around these alternatives. Read more...
Achieving profitability with alternative fee arrangements
With the increasing prevalence of alternative fee arrangements (AFAs) – such as fixed, blended and capped fees and retainers – firms have the ability to increase the client’s perception of value, improve employee satisfaction and provide a competitive advantage all at once.
But not all AFAs produce profitable results. How can law firms be proactive when it comes to legal pricing and maintain good client relationships at the same time.
Worldwide, pricing pressures are increasingly being experienced by the legal industry. Read more...
What strategies are being used to manage outside legal costs? - Not AFAs!
I completely understanding why clients feel frustrated with the so-called Alternative Fee Arrangements (AFAs) that law firms often propose to them and are pushing back on these. Whenever you discuss AFAs with law firms, all you tend to hear is talk of ‘fixed fees’, ‘capped fees’, ‘success fees’, ‘risk collars’ and other such loft terms, more often than not being held as if they were innovative disruptors in the way we price legal services when the reality is 99.9% of them have the billable hour underpinning them and have been on the pricing menu for more than two decades.
So why shouldn’t clients just go with a standard billable hour and get a 10% discount at the end of the matter – much simpler and proven route (and, as a side note, interesting to see the report continues to show realization rates on the slide!). Read more...
Fixed fees and underpricing: seller beware!
Offering fixed fees should not be seen as a cure-all for the silliness of under-pricing!
After my last blog on low-balls and low costs estimates, I received a number of responses advocating the use of fixed fees. I’m a big fan of some fixed fees (proper value-pricing), but there are different varieties and they can actually lead to poorer (lower) pricing if you are not careful.
Let me explain. Read more...
LEGAL PROJECT MANAGEMENT
Due process: project management in the new litigation landscape
Litigators are generally good lawyers. Most choose litigation because of the enjoyment and intellectual rigour of arguing law and facts. Few become litigators because they wish to be project managers yet, at least with high-value complex litigation, that is what they essentially become.
Litigation is a project: time and cost frame the planning, coordination and monitoring required to meet unique objectives. It has not always been seen as such; we do not need to look back as far as Bleak House to see that. The last 20 years have seen exponential change in the litigation landscape; new factors adding to increased pressure on ever-present variables. In this new world of dispute resolution, success is delivered through dynamic design. Read more...
Marketing Partner Forum: What Are Procurement’s Best Practices for Pricing?
Budget predictability is of paramount concern for law firm clients. With continued financial pressures influencing clients’ decisions to bring more work in-house, many corporations are relying upon their own experienced pricing/sourcing officers to vet, select and manage outside counsel.
However, a major issue for many within this increasingly prominent group of legal professionals is the continued inability of client relationship partners — the law firms —to adhere to budgetary commitments.
High Noon: A Pricing Negotiation Master Class at the recent 24th Annual Marketing Partner Forum allowed attendees to engage directly with legal procurement professionals and General Counsel in mock pricing negotiation exercises. Participants were given hands-on, one-on-one coaching from procurement professionals and gained a unique insight around strategic conversations, client expectations and pain points. Read more...