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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']

Espresso.2

Validatum® 60-Second Pricing Insights

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We are going to run regular polls that provide our followers with short but important insights around market activity, behaviour and attitudes that are virtually impossible to obtain any other way.

Everyone is too busy to devote too much time to these things so we have set ourselves a 60-second limit. That is, practitioners must be able to complete the few questions in 60 seconds or less and get an immediate display of the results in real time.

A high level of participation and anonymity leading to more candid responses will provide useful information.

We are still working on some of the technology aspects to make the whole experience as real-time, seamless, engaging and interesting as we can for you, but here are the results of the first one, on charging for data rooms/collaboration software which represents a significant ongoing annual cost for firms.

'Trophy' Clients: Be Careful What You Wish For!

Trophy With Money

We all like a ‘good client’, whether it is an existing client, or a big one we hope to land. But what exactly are the attributes of a good client and what do we do about them if they aren't as good as we thought they were? When working with partners on pricing strategy...

When working with partners on pricing strategy, an exercise that involves amongst other things, pricing client files that are active at that time, some of my pricing suggestions can be greeted with, “oh, I can't do that, this is one of my good clients!"

And a good client looks like what? Read more...

Data v Information: Dangerous Drivel From The Legal Services Consumer Panel

Value-v-Price

“The slow pace of change in the legal services market means “regulatory intervention” is needed to force firms to publish their average prices even though it is not a perfect solution, the voice of legal consumers has said. The Legal Services Consumer Panel said this could also counter negative perceptions of lawyers.

Earlier this year the panel made a series of recommendations to the Legal Services Board (LSB) to open up data in the legal market so as to help consumers make informed choices when selecting an adviser. However, the LSB responded cautiously to some of the headline recommendations around price, mystery shopping and complaints records.

In a newly published letter back to the board, consumer panel chair Elisabeth Davies said the need for regulatory intervention on price was bolstered by the LSB’s own recent research that found only 17% of providers advertised their price, and that those who did were generally cheaper than those who did not.” (Read the full article at Legal Futures, 12 July 2016) Read more...

AI and Hourly Billing: How to Avoid the Perfect Pricing Storm

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This is a Guest Post written by pricing expert, Richard Burcher, Managing Director of Validatum about how to avoid the trap of seeing efficiency combined with hourly billing result in margin erosion, and instead to use AI to increase productivity and boost law firm income.

The article was written ahead of a Validatum conference this summer at the offices of CMS Cameron McKenna in London and the survey data below is from that audience.

We have been thinking about AI from a pricing perspective for some time, so earlier this week we picked up that theme for the latest bi-monthly Validatum Pricing Forum. Read more...

With Great Raises Come Great Increased Billing Requirements — The Other Side Of Raises

Boy I Sure Did A Good Days Work Today

When Crowell & Moring matched the Cravath scale through fifth-year associates, it officially marked the “what is going on here?” moment of raise-a-palooza. This was no longer an overdue market correction where Cravath, S&C, Simpson, Davis Polk, Cleary, etc. recognized that firms across the country had reached $160K and it was time to recreate some daylight between the top-tier firms and the rest. No, now the rest of the country was hell-bent on staying on pace with the big dogs for at least another furlong.

But even in the early days of this cycle, we speculated that firms trying to follow suit would see administrative changes in the aftermath of raises. We’ve already seen a few firms announce changes to hourly minimums along with raises. But now comes a stealthy policy change, an increase in hours a full month and a half after handing out raises. Read more...

Why 80% of clients choose more expensive firms

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[Reproduced from an original article by Paul Hugh-Jones on 23 May 2016, with the kind approval of beatonbenchmarks™].

When we present our beatonbenchmarks™ reports, the section about why clients appoint a more expensive firm often gets the most attention, challenge and interest. Of course, this doesn’t mean that 80% of clients always choose a more expensive firm, but it does mean that they are open to selecting firms based on demonstrated value rather than price.

And this is true across the professions. Our data for Australia shows the numbers are: 82% in legal, 85% in consulting engineering, 71% in accounting and 83% in management consulting. Read more...

Investing in bids reaps rewards for UK law firms

Bid

UK law firms are increasingly confident of their ability to win pitches, with as many as 59% saying they win more than 50% of their new client proposals. This is according to recent research conducted by Totum, in partnership with US recruitment firm J. Johnson Executive Search.

The study polled UK and US firms to ascertain specific ways in which they respond to request for proposals (RFPs), as well as general levels of confidence and sophistication in the legal sector’s approach to bids and tenders. In this piece, we look at the highlights from the UK survey – which we will compare to US findings in a follow-up article.

UK findings were split fairly evenly between large (600+ lawyers) and mid-size firms (100-600 lawyers) – at 55% and 45% respectively – with most respondents (55%) at director or ‘head of’ levels of seniority. Read more...

Law Firms Are 'Terrible' at Billing, Says GE's GC

Bill Shock Hi Res

Billing conversations are critical to a positive relationship between law firms and clients. And yet many firms are struggling to get billing right, says Alex Dimitrief, General Electric's general counsel.

"Law firms, in all honesty, are terrible at this," says Dimitrief, who was named GE's GC in November 2015 and who will be relocating to Boston when it moves corporate headquarters. "A law firm should describe what they did and why they are charging what they did. Instead, what you get is an administrative task that law firms delegate to administrative employees who haven't been involved in the matter," says Dimitrief.

To illustrate, Dimitrief talks about the considerable bill he received from a firm years ago, which he says he had no issue paying because the firm had earned it. The problem, he says, came several months later when an additional bill for under $70 showed up with no explanation as to why it was submitted late. "You start to wonder, 'How do I know that anything I got before was reviewed carefully,'" he says. "It wasn't worth less than $70 to have this stick in my mind years later as what not to do with billing." Read more...

The Alternative Fee Arrangement That Will Force Big Firms To Innovate Or Die

Contingency Percentage

People insist that law firms are incapable of change. The big firms have prospered in the past; leaders care only about the next five or ten years (which will see them into retirement); firms therefore won't implement new models for law firm pricing.

Here's the contrarian view: Firms will have no choice. We've seen the future of pricing, and firms will adapt or die.

I struggle with alternative fee deals as much as the next guy. We'll align the law firm's interest with ours! We'll get a discount for failure, but pay a premium for success. Read more...

Pricing Uncertainty: The Legal Industry's $60 BILLION Challenge

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Recently, the legal industry has been the subject of eye-catching reports involving the arrival of a $2,000 per hour billable rate for elite law firm partners, an increase in first year associate starting salaries to $180,000 and the response of influential legal department executives to this news....

The legal industry’s biggest challenge is $60 BILLION of pricing uncertainty. Every year in a single industry, $60 billion is “up for grabs” between clients and their law firms. The number is enormous and results from extrapolating the recently published average net realization rate (83.0%) across the entire industry. Assuming a 17.0% unrealized number, $60 billion is the delta between the dollar value of the hours recorded in law firm billing systems and dollars actually paid by clients after write-downs, write-offs and uncollected dollars. Read more...

GSK, AFAs and the Continuing Evolution of Legal Billing

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In an article, published last Wednesday on Law.com, author Jennifer Williams-Alvarez relates how the pharmaceutical giant, GlaxoSmithKline, has virtually eliminated hourly billing across its outside counsel panel, worldwide.

With 84 percent of the work performed by outside counsel for GSK in 2015 billed under alternative fee arrangements, the company has reportedly reduced its legal spend without sacrificing the quality of its legal representation. According to the article, GSK’s AFA usage has grown from just 3 percent in 2008.

In the context of our 2015 Year-End Enterprise Legal Management Trends Report, which reported that overall, AFAs were used in 9.4% of matters and accounted for 7% of billings, GSKs success in implementing AFAs across the board is beyond impressive. Read more...

Demand Is Down. Why Are Billing Rates On the Rise?

On The Rise Article 201608181745

Contradicting the ordinary rules of supply and demand, law firms have continued to jack up hourly fees faster than flat demand and a projected 1.7 percent annual inflation rate would suggest.

According to a survey of 180 large U.S.-based firms released this week by Citi Private Bank's Law Firm Group, demand for services grew a negligible 0.3 percent in the first half of the year. At the same time, Citi found, average rates per hour have grown by 3.2 percent, surpassing last year's 3.1 percent hourly average price increase.

The findings echo those by Thomson Reuters' Peer Monitor earlier this month, and the rate trend seems likely to continue. Citi noted Tuesday that "rate increases will likely be the key drivers of full-year profitability growth in 2016." Read more...

Procurement’s future: a digitally enabled collaboration engine

Procurement

Relationship building and collaboration, data analytics and technology. On the face of it, the connections between these two future-facing capabilities aren’t perhaps immediately obvious. The former, after all, is about softer, ‘right brain’ type qualities, while the latter calls for harder, more scientific ‘left brain’ characteristics. But for supply chain organisations and the procurement professionals within them, they are twin engines powering the journey to superior customer experience and business value.

I’ve just returned from SCM World’s sixth annual Leaders Forum event in Dublin, where C-Level executives from famous brands like Nike, Amazon and Johnson & Johnson described how they are transforming and evolving their supply chains to meet the demands – and numerous opportunities – of an increasingly digital world. Read more...

The altruistic history of the billable hour

Billing-Time

IF YOU ask most attorneys who Reginald Heber Smith was, chances are the majority will not know he was the lawyer who coined the billable hour. If you delve deeper and research why attorneys often bill in six minute increments to the hour, these same attorneys would probably be unhappy to learn that the notion of six minute increments was a thumb-suck by Reginald because "it was easy to divide an hour by 10"

Ironically, relative to the current age of soaring legal fees, the story goes that Reginald felt the need to introduce the billable hour for altruistic reasons, mainly to keep his team of attorneys honest. During the early 20th century, the American Bar Association imposed price floors for common types of legal assistance – a menu of legal services with a minimum charge, so to speak. In order to ensure that each of Reginald’s lawyers in his legal aid department was servicing clients truthfully, Reginald wanted to know their productivity against this minimum pricing to ensure legal bills did not run away with themselves, especially for indigent clients. Read more...

At BASF, It’s Alt-Fees or Firms May Not Get the Work

Good Cheap Fast Thinkstock

A number of companies are moving away from the billable hour, favoring alternative fee arrangements instead. At BASF Corp., the North American affiliate of German chemical giant BASF SE, not only is an alternative fee arrangement preferred, firms are required to present such an arrangement for review.

Alternative fee arrangements were in use at BASF before he arrived, said Matthew Lepore, senior vice president, general counsel and chief compliance officer at BASF, whose North American headquarters is in Florham Park, New Jersey. However, since his arrival in January 2014, a lot has changed when it comes to fee arrangements. Read more...

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