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Where’s the legal services pricing puck heading? is a compelling interview with Richard Burcher, the leading authority on pricing legal services and contributor to the Dialogue on Remaking Law Firms.
Thank you for joining the Dialogue on Remaking Law Firms for a Q&A with me today, Richard.
In today’s hyper-competitive world for all types and sizes of law firms, how do the smart firms start when they decide to be more deliberate in the way they price their services?
In five ways, George. First, they understand cost consciousness, in other words, their lawyers behave in ways that demonstrate to clients that they are spending clients; money as though it was their own. for readers unfamiliar with cost consciousness, I recommend they read your own work on this, e.g. More on the importance of cost consciousness in law firms. Next, they have a very client-centric approach, their world revolves around clients. Third, as Warren Buffett once said, ‘Price is what you pay, value is what you get’. The best firms understand the distinction between the two. Fourth, they understand that pricing is the alchemy of science, art and skill. You have to think about it both quantitatively and qualitatively. The business of determining a fair and reasonable fee is an exercise in assessment, an exercise in balanced judgement, not merely an arithmetical calculation. And finally, they understand that the pricing function in a law firm needs to be properly resourced and imbued with sufficient authority and status to make a difference.
You’ve referred to deepening the firm’s understanding of clients’ preferences in respect of pricing. In your experience, what are the most frequent client views?
Clients have different priorities and those priorities are factually contextual. The list of requirements is highly predictable: lowest price, good value, transparency, budgetary predictability and cost certainty to name some. However, the weighting attached to each of these criterai will vary from client to client and even between different matters for the same client. Perhaps of all the things clients are most desperate for is transparency and budgetary certainty and timely communication pre-empting unpleasant surprises. It seems obvious when I say this, but most firms and their lawyers find it very hard to do all day, every day.
What are the most effective ways of tracking internal pricing behaviours? You often refer to ‘pricing governance’ and ‘pricing metrics’ in this respect; where are the best places for law firm leaders to learn about pricing governance and metrics?
Metrics are relatively easy to capture, measure and track but behaviours and attitudes are by definition more subjective and harder to measure. The interesting thing for me is that one of the best indicators of whether a firm is meeting client pricing expectations is trends in relation to debtor days. Clients can be slow in paying their bills if they have cash flow issues but significant delays in paying an invoice are more usually attributable to some measure of dissatisfaction. The fee quantum may in the abstract be perfectly reasonable, but it becomes a proxy or lightning rod for some other element of dissatisfaction, usually service-related. Pricing governance should never entail pages of operational minutiae. It should consist of no more than 10 commandments to provide the constitutional framework for the firm’s entire approach to pricing.
Briefly describe a law firm pricing change management success story. What shape were they in when they started? How far and fast do they travel? Where are they now in terms of client satisfaction, staff comfort with the changes and the firm’s profitability?
Obviously specific examples are a little commercially sensitive, but within the last 12 months, one of the mid-tier UK firms we work with took out one of the UK’s major legal profession awards for their efforts around pricing improvement. Key to their success was that the project was undertaken from the point of view that it had to deliver great outcomes for both the firm and its clients. From the firm’s point of view, they were delighted as profitability entirely attributable to the pricing improvement program increased by 28% in the first year. They were also greatly encouraged by the positive feedback from clients which focused on – no surprises – increased pricing transparency, increased budgetary predictability and what the clients saw as a general change in the firm’s approach to one which was more collaborative in the development of matter scope and pricing.
Wayne Gretsky*, the fabled Canadian ice hockey player is renowned for attributing some of his success to “Skating to where the puck is going to be, not where it has been”. In your opinion, where’s the pricing puck heading? What characterises the firms are setting the pace?
I love the puck metaphor George! Partners will have to become much more financially and commercially literate. Actionable insights extracted from a firm’s wealth of data will drive more informed pricing decisions and behaviour. Machine learning, statistical prediction and natural language processing have as much a role to play in bringing a more sophisticated approach to pricing as they do in any other aspect of legal operations. The legal profession has a very long way to go to catch up to the pricing sophistication of most other sectors of the economy from aviation and hospitality to pharmaceuticals and fast food, but we will see eventually skills and technology that will enable firms to engage in dynamic pricing (Uber et al), sophisticated price discrimination (yes, it is lawful) and price segmentation amongst other things.
Wow, this has been a tour de force; thank you Richard.
You can also read this interview on the Validatum website by clicking here.