The world of legal services enjoys the unique position of valuing relationships and quality overpricing. The majority of clients choose a firm for quality and skill, or indeed because they trust a particular lawyer, rather than because they offer the lowest price. However, financial crises and a move towards risk-sharing are driving change in client relationship management.
Clear pricing structures, and matters which stick to budgets, save awkward conversations for firms and their clients. In the long run, investing in technology that enables transparency and value-based pricing structures, ensures a stronger relationship with your clients.
Pricing is as essential as the personal relationship in demonstrating a firm’s understanding of the client’s priorities and delivering work with them in mind
Providing Transparency: Why Pricing Drives Client Satisfaction
For many clients, trust is an essential part of the relationship with their legal counsel. It is why some firms invest heavily in succession planning. There’s no shortage of law firms who have witnessed an attorney jump ship, only to lose a (or if it’s really bad, multiple) key clients with them. Although many matters are the concerted effort of multiple departments and professionals, it is the personal relationship with the client that survives. This traditional understanding of client satisfaction, however, is taking a beating under a succession of financial crises.
Both the 2008 crisis and the economic downturn during COVID-19 have driven clients towards cost-consciousness. Financial uncertainty inevitably forces a business to reduce outgoings and uncertainty regarding expenses. In turn, the hourly rate style of billing becomes untenable.
Clients want to know in advance how much a matter will cost, and weigh that against the value of the outcome. The Altman Weil Law Firms in Transition survey illustrates this drive for price certainty succinctly. 7 in 10 law firms have seen work, traditionally performed by external counsel, move in-house. The key reason? In-house work is salaried, and thus more predictable from a cash-flow perspective.
Clocktimizer recently hosted a webinar with Anshoo Patel of Blank Rome looking at how firms can take advantage of data driven budgets. During the webinar the panelists shared a key insight about the relationship between pricing and trust for clients.
“One of the single biggest reasons firms lose clients are surprises during billing. You shouldn’t get to the end of a matter only to realise that you have gone over budget. Passing off this to clients leads to disappointment and a loss in confidence of your ability to handle a matter.” Clocktimizer Webinar: Data driven budgeting
Pricing and legal project management (LPM) teams play a far more central role in client satisfaction and value than many firms realise. For the majority of the legal profession, the use of fixed (or worse: capped) fees, if used at all, is not a sophisticated process. Firms without pricing and legal project management technology, like Clocktimizer, often have to rely on guesswork to build a pricing structure. In many cases, due to lack of time and technology, a firm will simply look at a recent similar matter and use the total cost of that matter as the quote for a new matter. Not only is this rarely accurate, but it fails to take advantage of the ways fixed fees can support client relationships.
Because no client’s definition of value is the same as any other, no fixed fee should be the same as any other. If a client needs work completed quickly, price the matter quickly and based on historical work which was also completed at pace. If a client wants to avoid unnecessary expenditure, create a pricing structure that excludes Senior Partner work where possible.
Breaking down matters into component activities, rather than regarding it as a blended rate whole, enables you to prioritise activities or seniority levels in line with client value. Importantly, this technique is not wishful thinking. It is a strategy which is already used with great success by firms like Barnes & Thornburg, while leveraging Clocktimizer’s technology:
“We had the opportunity to pitch for some wage and hour class action work, which is complex, expensive work. Our data set for this sort of work was somewhat limited over the past decade and we had very little time to build a quote. The client was looking for fixed fees and capped fees by phases, so we were able to identify tasks and classify them into phase categories and constructed a quote from that. Because of how detailed our quote was, we pitched an AFA and won the work.” Levi Remley, Director of Pricing, Barnes & Thornburg
So if pricing is such an effective client value tool, why is it still so underutilised within the legal profession? At Clocktimizer, we see a number of common pricing myths that block greater adoption. First, many firms fear that they do not have sophisticated enough data to offer client value pricing. Second, firms fear pricing efforts are not cost-effective. Finally, firms (and therefore their clients!) believe that the most accurate fixed fee will still fail at implementation because of unseen costs incurred during the matter lifecycle. Let's take these in turn.
Law firms are not short of data. However, it is important to distinguish between quantity and quality. Many law firms rely on codes to categorise the activities they perform in a matter. Unfortunately, codes may not be consistent across practice groups internally, and are often incorrectly applied. It is understandable then, that most firms who use code data to build fee quotes may find them inconsistent or inaccurate.
However, law firms do generate a lot of highly accurate matter data through their narratives. At Clocktimizer, we use natural language processing to read and classify narratives into activities. Which is why customers like Barnes & Thornburg (above) are able to generate highly accurate fee quotes, based on activity breakdowns to win pitches and the hearts of clients. By unlocking the information stored in narratives, all firms can generate detailed pricing structures in minutes.
Great pricing professionals don’t come cheap. Accordingly, many executives believe that firm-wide pricing efforts are out of reach for all but the largest law firms. However, this view often overlooks the role technology can play in scaling pricing efforts. Recently, Clocktimizer spoke with Barry Honea of Locke Lord about the insights tools like Clocktimizer can offer firms and their Executives.
“By using Clocktimizer analysis tools with attorneys, Locke Lord has given better insights into what works and what doesn’t. Their attorneys are now excited to compare groups of matters to identify better pricing choices for the client and the firm. Because Clocktimizer breaks down matters into activities we are able to analyse which activities are most profitable, allowing us to tailor our pricing strategies.” Barry Honea, Chief Financial Officer, Locke Lord.
Technology that automates analysis for pricing, enables any practicing attorney to make tailored (and more importantly informed) pricing choices. This reduces the costs sunk in administrative analysis, and in unnecessary staffing. Pricing professionals can focus on strategy and profitability or streamlining efforts, and legal professionals can support themselves in pricing smaller matters.
Sadly, none of us has a crystal ball. Pricing, even when based on solid historical data, cannot predict what will happen during the lifecycle of a new matter. This is seen as a deterrent by many firms who fear complex pricing arrangements will cause them unnecessary write-offs or become untenable at a later stage. However, the increasing sophistication of budget and matter management tools, are more than able to keep matter leakage in check.
At Clocktimizer, we recognise that pricing is at play throughout a matter. It is why we allow our customers to convert fixed fees directly into budgets on our platform. These budgets are as sophisticated as the pricing, and can be broken down to cap amounts by phase or even task. Early warning systems then alert team leads or project managers when the budget is being used, or even when someone records out of scope work on a matter. Importantly, this happens in real-time, avoiding the dreaded discounting process at billing.
For many firms, there is an unnecessary fear of having billing and pricing conversations with clients. This fear is unfounded. As Jessica Davis of McCarter & English points out:
“Proactive write-offs may seem helpful, but they are invisible. A client won’t know you have discounted the work. Talking with a client about the work you have done already, and why you understand that the client needs the discount, makes the client aware of how well you value the relationship. This is likely to lead to increased collaboration.” Jessica Davis, Director of Matter Performance and Service Innovation, McCarter & English.
For too long, firms have shied away from a valuable tool in improving relationships with their clients. Pricing is as essential as the personal relationship in demonstrating a firm’s understanding of the client’s priorities and delivering work with them in mind.
In spite of the many misconceptions surrounding pricing, firms have all of the data they need to offer bespoke pricing. Investing in technology to analyse data and support attorneys is an effective way of scaling your efforts firm-wide. Not only can this keep matters (and thus profitability) on track internally, but it benefits all clients rather than a select few.
The past year has been a true whirlwind, throwing up an unexpected amount of turmoil and challenges for the legal profession and their clients. By offering pricing certainty and transparency, law firms can distinguish themselves from the competition and build closer relationships with their clients.