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']
“We’ll have a chat at the end” – a $20 Billion Black Hole
We lawyers detest talking about our fees with our clients. We have worked with over 300 law firms in 18 countries and if there is one common denominator, it is a shared perspective that the price conversation is the most unpalatable and stressful aspect of the lawyer/client relationship.
We will do anything we can to avoid it and for many years, until regulation intervened, we could get away without much of a pricing conversation at the outset or at best, a very vague and abstruse one that kept all our options open. Read more...
Read This Before You Set Your 2018 Billing Rates
Setting the next year’s billing rates follows a simple formula at most firms: last year’s rate plus a common percentage increase across all lawyer cohorts. A more disaggregated approach is needed. Specifically, firms should set higher percentage increases for senior lawyers and lower increases for junior lawyers. Why?
Because, over the next 10 years, hours leverage (i.e., the number of associate hours per partner hour) at elite law firms will decline as more of the lower value-added work is handled not by junior lawyers but by enhanced technologies, in-house counsel, and alternative service providers. To maintain profitability, the margin that was earned on the displaced junior lawyer time has to be recouped through higher margin on senior lawyer time. Read more...
What Do Lawyers Really Do With Their Time?
No wonder so many lawyers in this country work long hours to meet productivity goals. A recent billing trends report finds lawyers spend only 29 percent of each workday on billable time.
That’s only 2.3 hours of billable time for each eight-hour workday, according to the second annual Legal Trends Report, which was prepared and made public today by Clio, a Canadian company that provides cloud-based practice management for firms. The report includes data analysis and also the results of a survey of legal professionals and consumers.
The report, based on data from more than 60,000 paying Clio users that include U.S. firms of all sizes, also found an 82 percent realization rate, which is the percentage of billable hours that are invoiced, and an 86 percent collection rate, which is the percent of billed work that is paid. That means the average lawyer collects only 1.6 hours of billable time from each workday, according to the report. Read more...
Bye-bye, billable hour? Law firms use Big Data to set fees.
Tom Van Der Moere knows some lawyers at Neal Gerber & Eisenberg resist thinking of, say, the discovery phase of an employment lawsuit as a "product."
"I know that's a bad word," says the firm's chief financial officer. "They don't like to talk about it that way. But we're trying to build that into our lexicon. . . .It's OK to have products. It doesn't make (the work) less meaningful."
Yet even intangible products need price tags. Increasingly, Chicago law firms are using data to improve how they price their services, striving to grow margins and win new business in a market where requests for proposals are supplanting personal relationships. Read more...
What Lawyers Can Learn from Apple When Setting Billing Rates
Last month, Apple unveiled its new iPhone X to much fanfare. Perhaps what created the most fanfare was its price. It starts at $999 — hundreds more than the older iPhone 7 and the brand-new iPhone 8.
You don’t need a Ph.D. in Economics to understand the logic behind Apple’s pricing strategy. It’s simple. Apple hopes that for many, owning a high-priced phone will become a status symbol, much like owning a luxury car. In short, having an iPhone X broadcasts prestige, prominence and stature. Read more...
Value-add – Free Stuff or Game Changing?
At the latest Validatum Pricing Forum® on value-add, we asked attendees whether they thought their value-add differentiated them from their competitors and helped them win work. 86% of respondents responded ‘Occasionally, but hard to know whether the client really values the services’. Worrying isn’t it, given the amount of investment and effort that law firms put into it?
I’m a bit of a cynic when it comes to value-add. I think for the most part it’s a list of additional requirements that form part of the commercial package for a client. I believe that it could be a key differentiator for law firms, a way to stand apart from the competition and add demonstrable business value, but the reality seems to be that clients now expect a shopping list of ‘free’ stuff that may or may not be used, and has questionable worth.
Controversial? Perhaps, but ask yourself these questions…Read more...
LAW FIRM ECONOMICS
Should Law Firms Charge Less or Differently?
Four years ago, Richard Susskind published the first edition of “Tomorrow’s Lawyers: An Introduction to Your Future.” With the rapid changes in the legal profession, tomorrow is now today.
The second edition of “Tomorrow’s Lawyers,” widely considered a must-read for business of law and legal education professionals, focuses more sharply on how artificial intelligence, alternative business structures, low-cost law firm service centers, legal tech startups and evolving in-house roles are changing the way legal services are delivered and how law schools are educating students to meet those changes.
You’ll recall from Susskind’s first edition his credibility as a futurist: He’s devoted his career to theorizing about and planning for the legal profession’s long term. (You might also remember he predicted in the first edition a relentless march by the Big Four accounting firms into the legal services market, a prediction proven accurate last month when we broke the story that PricewaterhouseCoopers is launching a D.C. legal services office. Read more...
Why Your Law Firm Isn't Anywhere Near As Profitable As You Think
By conventional measures, Big Law firms are some of the most profitable businesses on earth.
The average profit margin for the Global 100 is a lofty 39 percent, according to data published this month by The American Lawyer. The highest profit margin in the group, which goes to Quinn Emanuel Urquhart & Sullivan, is almost 68 percent. That’s more than three-and-a-half times the net margin of tech giant Apple Inc., and over nine times that of Warren Buffett’s Berkshire Hathaway, based on each company’s returns in the last quarter.
How can that be possible? Read more...
PwC launches on-demand flexible lawyering service for clients
PwC has launched a new flexible lawyering service as part of its ‘New Law’ offering for large in-house legal teams.
The new service, dubbed Flexible Legal Resources, will help clients with their staffing needs by providing temporary lawyers for in-house teams during abnormal spikes in workload.
PwC expects the service to be used by clients requiring increased resources for tasks such as large-scale contract review, disclosure exercises during investigations, and other implementation challenges driven by regulatory changes. Read more...
Profits decrease at half of UK law firms
UK law firms are suffering from increased competition, poor adaption of cutting edge technology and rising fee-earner costs.
US law firms and new entrants to the legal marketplace are proving difficult for UK firms to compete with as half of the UK firms see profits decrease. According to new figures, despite 70 per cent seeing fee income growth, the average growth was just around three per cent. Rising staff costs are a key contributor to the decreasing net profit margins of UK law firms as they grapple with increased fee earner numbers over recent years coupled with an ongoing decrease in chargeable hours and resulting spare capacity. Furthermore, many UK legal firms are still only embracing commonplace - rather than cutting edge - technologies, according to PwC’s 2017 Law Firms’ Survey. Read more...
LEGAL PROJECT MANAGEMENT
Where to implement legal project management?
The benefits of applying legal project management (LPM) successfully are well known and include things such as:
- improved scoping, which in turn results in better estimates of cost and effort required to deliver legal work;
- better management of legal matters once they are underway and
- improved communications with clients and third parties. Read more...
Currell on Convergence and Preferred Provider Panels
One of the biggest stories over the summer of 2017 was an open letterfrom 25 general counsel announcing that they are working together to test industry assumptions about the legal market. Although the composition of this group is very impressive, it is also not random. Each company is a member of AdvanceLaw, a network of buyers and suppliers of legal work that seek to drive value by sharing quality metrics and creating data-driven best practices.
Fortunately, Legal Evolution readers are about to get the benefit of some of AdvanceLaw’s insights. Over the next three days, AdvanceLaw Managing Director Dan Currell will post a three-part series on law firm convergence and preferred provider networks — basically, theory versus practice (029), how to build a panel that can deliver value (030), and the necessity of active client management (031). Read more...
New Players Driving Value for Legal Departments
Lawyers are about precedent—stare decisis—not innovation. They are trained to identify issues (read: problems), not create solutions. And they have historically played the role of client defender, not business partner. Their law school training was reinforced upon entry to practice. That was legal culture
But it’s changing thanks to consumers. Legal consumers and a handful of managed legal service providers have separated legal practice—core tasks that require differentiated legal expertise and skills—from the delivery of legal services—the business of law and the integration of practice and delivery. Read more...
Driving efficiency is code for cutting costs
How can in-house lawyers and private practice work together to drive efficiency?
‘Driving efficiency and delivering value’ are seen generally as code for reducing costs and there is no doubt the pressure on GCs and in-house departments to reduce the cost of providing legal services will continue, regardless of the organisation or industry. This pressure translates into private practice firms being asked constantly to find ways of reducing the fees billed for work, to fix costs, take risk on fee amounts or find cheaper ways of carrying out tasks – including through automation or outsourcing.
All this is business as usual but, in my view, we miss great opportunities by looking only at the cost side of the equation and the inputs to providing legal services rather than what outcomes are really required and what value can be generated for the organisation by doing things differently. Read more...
Reputation Trumps Price Say Most GCs
The latest General Counsel Excellence Report 2017 which has now been running for five years has produced the eyebrow raising conclusion that in the eyes of most GC's, the reputation of individual practitioners and their teams is more important than the reputation of the firm or pricing when it comes to selecting the right external legal resource.
Earlier this year we published a blog entitled ‘We’re more expensive than them because we are better than them’. The blog began with my observation that although there are clearly exceptions, it is well understood by most law firm marketing and BD specialists, if not so much by partners, that for the most part, technical ability is not a differentiator in the eyes of clients. And even if it is a differentiator in a specific situation, claims of superiority tend to be viewed by clients as little more than hyperbole and lacking any kind of proof. Read more...
Law Departments Are Adding Lawyers, Legal Ops While Cutting Budgets
The amount of legal work that many companies are engaged in is growing, a new report says, but legal departments’ budgets aren’t.
So unsurprisingly, roughly three-quarters of all legal departments say controlling outside counsel costs is a high priority, according to the latest research from Thomson Reuters released Monday. This has resulted in adding in-houPRse lawyers and legal operations staff in some cases.
“More legal departments are taking an operationally focused approach to optimize processes, rather than relying solely on blanket approaches such as fixed fees or matter budgets,” said Mark Haddad, head of the corporate segment for Thomson Reuters. “This is helping legal departments more effectively manage their outside counsel spend. And this approach will benefit those firms that adopt a proactive strategy in delivering and demonstrating their value.” Read more...
'We've got your back' - Jackson LJ calms unbundling fears
Court of Appeal judge Lord Justice Jackson has urged his colleagues on the bench to back solicitors who want to unbundle services.
Jackson, whose recommendations for fixed costs are being considered by the government, said his plans will inevitably mean law firms break up work to offer individual services. He acknowledged the profession still has misgivings but said it was up to judges not to penalise solicitors for taking the plunge.
Speaking at the Westminster Legal Policy Forum today, Jackson described unbundling as the ‘best way to ensure the best use of professional services in the context of more litigation in person’. He added: ‘Concerns about the nervousness that creates are perfectly understandable, but it is the job of all of us to see those concerns are sufficiently met.’ Read more...
Why Marketing Should Spend More Time on Pricing
Even before Philip Kotler wrote his famous book about the 4P's in marketing, pricing was very important to marketers. Pricing determines how much money is made, but pricing also sends signals to the customers about the value of the product or service. It sets the level of premiumness and expected quality, and it often also communicates about how the product should be perceived vis-a-vis competition. Therefore, Marketing should also be very much involved in pricing.
Pricing is a multi-faceted discipline, and here are some of the overall areas where Marketing should be in involved:
- Pricing research: what are customers, or potential customers, willing to pay for a given product or service? Read more...
Sellers beware. How 'big data' will shift the balance from law firms to clients
Law firms had better watch out. Clients now have inside information on law firms with decades of data on price and purchasing power, says Jaap Bosman, author of Death of a Law Firm.
About a decade ago clients started to realise that, in order to negotiate price with their external legal service provider, they needed some form of emotional detachment. Enter Legal Procurement. At that time, almost every major company started to let the procurement department handle the negotiations with law firms. As we all know, initially in its original form, this did not go well. Buying legal services is in many aspects different from buying office equipment, and price and quality do have, to a certain extent, a relationship. Read more...