June 19, 2014
Last week, the Legal Marketing Association held its P3 conference, which brought thought leaders together to discuss topics ranging from legal process management to pricing, all with an eye to how law firms can find innovative ways to meet the challenges of the changing business environment of the legal market. We already provided a short recap of the first day, so now we turn to the highlights of Day Two.
A topic of frequent discussion was the increasingly difficult task of pricing the services law firms and lawyers provide. To help provide some idea of how the “experts” price their services, a panel of pricing managers from other service industries, such as insurance and airlines, shared their insights into what they’ve found works and what doesn’t.
One of the panelists said his company had only recently shifted from pricing to maximize revenue to trying to maximize profit. It seems the two would go hand-in-hand, but as he discussed, you can earn a lot of revenue without actually making any money, because revenue doesn’t account for the cost of doing business. He said his industry’s focus on revenue over profit had led to spiraling price wars as competitors tried out out-discount each other. To an extent, the legal industry is at this phase right now. Our expert’s company found it was impossible to actually turn a profit because the prices couldn’t support the cost of the company’s operations. In shifting its focus, the company has now unbundled many of the amenities that were traditionally taken for granted, and instead turned those into revenue opportunities with prices calculated to turn formerly sunk costs into profit centers.
While the legal profession has some additional strictures regarding how we can turn a profit on costs, the idea of unbundling services is certainly something that firms can look at when pricing their matters, breaking a matter into smaller pieces, and better defining the scope of a particular engagement and what it will cost. As the panel put it, “use your data to determine where you can price high and where you have more pressure. It’s OK to have different prices for different customers.”
In another session, the pricing director of a law firm shared some of the strategies it has used to implement a new pricing strategy at all levels of the practice. He particularly focused on ways to improve partner pricing skills, but acknowledged that this has to start at the associate level. Recognizing this, one of the innovative approaches the firm took was to change how bonuses are awarded. They are still contingent on hitting a billable hour target, but to earn the full bonus amount, each lawyer must attend training to learn the firm’s pricing and business strategies and then implement those practices. As this presenter put it, effective management of pricing “has to start with financial competency with your junior associates, then adding additional skills as you move up. You can’t drive change without looking at the compensation structure.”
In all, perhaps the biggest themes to come out of the time in Chicago was that the market is ripe for innovation and creativity in the delivery and pricing of services, but it’s essential to have buy-in from firm leadership. Without that buy-in, to quote one presenter, “people will just think ‘Well, Dad said ‘no,’ let’s go ask Mom.’”