From AALL: Five Lessons On Law Firm Pricing

July 24, 2014

AALL14As a Librarian Relations Manager for Thomson Reuters, I am well acquainted with client concerns about pricing, but I wanted to know more about how pricing of legal services affects a law firm and where law librarians come into play in the pricing arena. That’s why I attended the “Librarians and Law Firm Pricing” session at the American Association of Law Libraries’ annual conference earlier this month.

Toby Brown, Chief Practice Officer at Akin Gump Strauss Hauer & Feld and contributor to the 3 Geeks and a Law blog, began the session with definitions of various pricing methods and margin measurements. My heart dropped. I kept thinking, “There is a reason I did not become a CPA.”

But then the clouds cleared. Brown was setting the stage for a general understanding that:

1.  Revenue does not equal profit.

At the heart of the basic profitability equation (Revenue – Cost = Profit), profits and revenues are on different sides of the equal sign. So, one might think that increasing revenue would automatically and positively impact profits.  One would be mistaken. Instead, firms need to think, “For X revenue generated, what was the cost it took to generate that revenue?” Firm management tends to look at fixed costs when trying to cut back on expenses. But cost per hour worked is an important and often forgotten part of the profitability concept. To wit…

     2.  Not all revenue is good.

Discounting hourly rates severs profit margins at double or triple the rates of the discount. For example, discounting the hourly rate by 5 percent has a negative 10 to 15 percent impact on profit margins because the matter costs don’t change. Once the discount is applied, client expectations have been established. Discounts set bad expectations for future work, and the likelihood of ‘undiscounting’ rates in the future is almost nil. Instead…

     3.  When it comes to fees, find out the client’s pain.

Hmmmm. This sounds suspiciously like a reference interview. Attorneys need to ask probing questions to unearth the true motivator behind a request for legal services and their payment process? I know of a group of professionals who excel in the art of digging into what is truly being sought after. Maybe librarians have an opportunity to contribute by sharing reference interview skill sets with their patrons to apply in client meetings. What are the client’s real concerns about fees? Once the firm knows this, appropriate pricing methods can be applied for a win-win situation.

4.  The ultimate pricing question to ask the client is “One year from now, what will fee success look like to you?”

From the mouth of Toby Brown, this is the magic question. We could subtract the word fee and have a pretty great question we should all be asking of our patrons and ourselves. What defines success will differ for everyone. Let’s begin our efforts with the desired outcome in mind and work backwards to determine the necessary steps to achieve that outcome. No useless spinning of wheels, just practical, do-able genius strategy equally applicable to both professional and personal goals. You’ve gotta love that in a take-away!

5.  Value is squishy.

This is another direct Toby Brown quote. I began to forget the fury of my original note-taking angst and bask in the truth of recent matters asserted. Value IS squishy. So, to make ourselves matter more, to impart real value as librarians, we need to know what our patrons and their clients see as valuable and then provide it. It is simple, but not always easy. Referencing point three above, librarians can perform the not-so-easy task of ferreting out this information. Just remember, value can and will change over time and from patron to patron We will always have the “squish” factor to contend with, and thus will always have the opportunity to involve ourselves in areas that are of most concern to management.

Overall, I gained an immense amount of learning. For my 55-minute investment, I was given at least five solid tips for practical application as a law librarian. That’s an ROI of .54 tangible tip per six-minute billing increment. I may not have the letters CPA after my name, but even I recognize that as time investment well spent.

A version of this post appeared on the American Association of Law Libraries’ Spectrum blog.