The 2019 PwC Law Firms Survey revealed that, “…the finance function’s top three priorities are pricing and profitability, working capital and business analysis/ reporting. These priorities are reflective of the continued high fee income write off levels and widening gaps in year end and average lock up performance. …What will be frustrating for many firms is the inability to flow these improvements through to the high level of fee income write offs”.
So, if pricing and profitability have floated to the surface for you in 2020, where might you start? ‘Where’s the legal services pricing puck heading?’
There are broadly speaking four areas you need to tackle;
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 you have strong pricing leadership in the firm – ‘Law Firm Pricing Leadership: Shoot Someone Occasionally’
- Do you have a preoccupation with turnover as opposed to profit? Which is more important to us and why?
- Does your meritocracy and remuneration structure incentivise or discourage pricing best-practice? Billable Hours Targets & Bonuses: A Greater Misalignment of Interests is Difficult to Conceive
- 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. The Vital Role of Pricing in Law Firm Marketing & BD Efforts
- Poor or non-existent triaging and ROI assessment of RFPs – 'Keep Your Powder Dry – The Hidden Cost of RFPs' and 'Trophy' Clients: Be Careful What You Wish For
- Poor or non-existent induction training on pricing – the blind leading the blind?
Pricing Analytics & Reporting:
- ‘Pricing & Profitability: Do You Have an Information Strategy?’
- 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, a dark art or merely a mindless administrative function? 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. Are we capturing the relevant data in an actionable format? – ‘Fixed Fees; Here Be Dragons’
- 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
Pricing Skills, Resources & Pricing Execution:
- 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 Planning for The RFP Storm – Part 1, Part 2 and Part 3
- Pricing confidence amongst partners is staggeringly low and yet confidence is absolutely critical to good pricing behaviour. If you don’t think you’re worth it, why should anyone else? Do you negotiate prices confidently or from a perspective of fear? - 'Time to Increase Prices: I Forget, How Do You Do That Again?
- Why do we understand so little about such a fundamental aspect of pricing science as price sensitivity – ‘The Science of Price Sensitivity; Yep, It’s a Thing’
- Is discounting the only option when a client won’t pay what you ask? ‘Yes, I Can Do It for That Price: What Would You Like Me to Leave Out?’
- Email – the worst thing to have ever happened to our price negotiation skill – ‘Hit Send and Hope for The Best’.
- The single largest contributor to law firm write-offs – ‘We’ll Have a Chat At the End: A $20million Black Hole’
Pricing & project management technology:
- Is Excel your only pricing tool?
- If you have other tools, do they provide an end-to-end solution that creates pricing proposals, project manages the lifecycle and uses AI to ‘learn’ and ‘teach’ users better pricing.
- Are you aware that there is a new generation of pricing tools such as Virtual Pricing Director®?
Where to from here?
Clearly, these issues can't all be tackled overnight or simultaneously. Which issues are picked off and in which order, depends on the current status of pricing in the firm. There 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 – ‘Pricing Self-Assessment Health Check’
This kind of candid stock-take can help to provide a solid platform for further decisions about pricing.