Legal Project Management Best Practices Series
Best Practices Guide to Implementing
Alternative Fee Arrangements and
Next Generation Pricing Strategies
1. Implementing and Managing
Next Generation Pricing
Strategies
•Mutually agreed and well-managed process for
handling variation, overrun and changes to scope
(a fundamental component of legal project
management and eBilling)
The headline message of this second part of our Best
Practices Guide on Alternative Fee Arrangements and
Next Generation Pricing Strategies is that law firms
need to prioritize two separate areas of pricing activity
and move forward, urgently, on both. Every evaluation
of the market suggests that firms are doing a lot
more around the first of these and often little around
the second, and we hope that this report helps firms
consider that balance.
•Practitioners, engagement leads, sales and finance
all highly educated and aligned in terms of
commercial and pricing terms and processes
Tactical, Short-term Actions
This is the legal sector’s “catch up” initiative, where
basic fundamentals of good client service have
sometimes been paid lip service or trampled in the
interests of a top-line and Per Equity Partner (PEP)
focus and in the absence of a determined, challenging
client base. Most focus is being paid to these areas
today, and even much of the apparently radical, and
sometimes traumatic, change in the way lawyers
engage with their clients falls into this category. They
are things the best professional firms have been doing
for years and have become hygiene factors in many
other sectors. Tactical initiatives include:
•Offering pricing options/choice (i.e., the whole
spectrum of so-called Alternative Fee Arrangements
(AFAs))
•Clear pricing and terms of engagement
•Providing price certainty and firm estimates
•Regular updating on progress and cost (one of the
key components of legal project management (LPM)
and of eBilling)
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•Timely, informative billing with pre-agreement
and negotiation of any major variations from the
original quote
Strategic, Mid-to-Long-Term Repositioning of the
Firm’s Price/Value Offering
This is the bigger-picture, longer-term and probably
more business-critical arena where every firm has to
determine and then implement a pricing strategy
for the three-to-five-year time horizon and beyond.
This involves firms’ determining what the emerging
new business model for their own markets will be
and adapting every aspect of their firms to respond
to that. While the tactical improvements are certainly
essential for firms, not least to handle intensifying
client demand for change, they merely allow firms
to “catch up” with long-established (and expected)
best practices across the business landscape. They do
not represent substantive business change and only
scratch the surface of the kind of shift being driven by
the transformation to digital business.
This second part of the Best Practices Guide also aims
to provide firms with some elements of a practical
toolkit for implementing and managing AFAs and
next generation pricing strategies. We have focused
on a short series of the “big questions” facing firms
in the middle of the decade as they plan for the next
three to five years, drawing on a lot of the very latest
commentary and our own Lex Mundi member firm
survey information. In the final section of Part 2 we
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have assembled a range of action plans for firms, from
some expert sources. Some members will already be
implementing some of these, of course, but we expect
there will be new ideas for every firm.
2.The Changing Role of Time
Recording and Internal
Management Information
If your firm is implementing alternative fee
agreements, does that mean your lawyers can stop
keeping time? Time records no longer appear to
be essential in order to create a bill under many
kinds of AFAs. On the other hand, without accurate
time records, assessing the profitability of work and
gauging the right level at which to negotiate such
alternative pricing arrangements will be tough, to
say the least.
Many AFA evangelists and prominent corporate
champions of AFAs and the “new normal” believe
law firms could – and should – liberate themselves
from the tyranny of recording time units. They argue
that the process of time recording in a modern law
firms is, in fact, highly skewed toward producing
bills that maximize fees, not providing a highly
accurate measure of productivity and cost. And if
law firms were truly interested in understanding
and then tackling cost and inefficiency, then all their
lawyers would record non-chargeable time just as
comprehensively as chargeable time – allowing firms
to investigate, isolate and identify administrative
bottlenecks, poor productivity and, in the “lean”
parlance, non-value-added activity. In most firms,
the recording of non-chargeable time is, in fact, very
limited, providing firms with little of this valuable
insight and revealing the sole focus of time recording
– to log units we can bill to the client. As an industry
are we recording time in the wrong way and
encouraging the wrong behaviors? We fail to get
the comprehensive resourcing and utilization data
law firms actually need, and instead produce inputs
to the billing process that typically antagonize and
alienate many of our clients.
In “The End of Timesheets,” Bernie Lietz, the COO at
US law firm Corbett, Duncan & Hubly, produced one
of a number of passionate arguments for lawyers
to get off the time recording treadmill. Lietz, along
with a number of other authors who have written
recently, asked why lawyers should obsess about
recording in detail inputs that their clients do not
care about, their clients do not want to pay for
1
(as opposed to value, which they do) and are not
the right way of measuring lawyer performance.1
However, while that line might be easy enough to
take in a relatively straightforward, single-office firm
that has completely embraced AFA pricing, there is a
gap in this argument; law firms need to understand
their costs, resourcing and efficiency inside out and
back to front. Without time records it is hard to see
how anything but a very small law firm can obtain
this understanding.
In fact, it seems that for firms using steadily more
AFA pricing, timekeeping is even more important
now than it was in the days when hourly rate pricing
ruled supreme. In this new market, firms with the
greatest insight are most likely to succeed, and
they need ever more accurate, comprehensive and
timely information about productivity and utilization
in order to manage profitability and engineer
continuous improvement in efficiency. Without that
data, the firm is forced back to the kind of broadbrush financial reporting that passed for “business
intelligence” a decade ago.
It is widely acknowledged that the billable hour
might not be the best measure of value, but it might
not even be the best measure of effort either, given
our habitual multitasking, checking messages/emails
and snatching increasingly small pockets of working
time on mobile devices while waiting for trains, in
line for our groceries or attending our kids’ sports
matches. As yet, we don’t have another truly viable
option for allocating costs to legal matters, but if
our Digital Age working habits continue to develop
in a direction that makes conventional time tracking
ineffective, we will have to find one. It may well
be that much broader estimates of time spent on
matters can replace time recording if we no longer
need to price and invoice based on time – cost
allocated based on a matter complexity rating,
for example. A lot of time recording effort, pain
and – yes – time on the part of fee earners could
be avoided.
If We Adopt More Transparent and Value-Based
Pricing, What in Our Accounting Won’t Work
So Well?
What matters to law firms and their management
teams is very different from what matters to clients.
Law firm management has historically focused a lot
of attention on increases in a small set of financial
metrics. However, as firms increase these key
numbers, in many circumstances the value received
by clients will be reduced.
Bernie Lietz, “The End of Timesheets,” Corbett, Duncan & Hubly PC (cdchpa.com) 8 July 2014. Web.
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The following are key law firm metrics:
• L everage – increase it by reducing the number
of senior, expert practitioners (partners) and
increasing the use of more junior lawyers
• U
tilization/chargeable hours – increase them by
working and billing more time on client files
• R
ates – increase them by raising the price we
charge clients for each unit of time
• P rofit PEP – increase it by improving profit
margins on client work and/or by restricting the
promotion of associate lawyers to partner status
Monitoring and rewarding of individual lawyer
performance are still closely tied to hours and fees,
stimulating a tendency to cling to the cost-plus
mentality that puts little premium on efficiency and
innovation. Improvements in these areas may, in fact,
directly undermine achievement of hours and fees
targets, at least in the short term.
This emphasis and the priorities and functions of firms’
financial processes will need to change as pricing
shifts further away from cost-plus hourly rate pricing
and billing. Firms need to turn received wisdom on its
head and take some practical steps toward:
•Continuously improving efficiency and reducing
cost of production – including always allocating
work to those with the most appropriate expertise,
eliminating non-value-added activity and utilizing
its technology investment effectively
•Lowering leverage as the need for lawyers to carry
out the most repeatable and predictable elements of
legal matters decreases – in some practice areas we
are already seeing leverage figures being rolled back
as automation and efficiency strip out some of the
less complex and challenging aspects of the matter
•Reducing hourly rates – by which we mean the
hourly cost of production (rather than necessarily
always the selling price of the work; in some cases
efficient and innovative firms can reap the reward
of higher profit margins)
•Measuring, delivering and being paid for quality/
value of outputs, as perceived by clients
•Pricing the majority of their work to maximize
certainty, perception of good value and,
consequently, repeat business from satisfied clients
Firms need to do all this while still improving
profitability and delivering rewarding careers for their
people, from entry through having a stake in the firm
as owners.
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Mike Roster, former General Counsel, Stanford
University and Golden West Financial, and Co-Chair
of the Association of Corporate Counsel (ACC)
Value Challenge, points out the obvious change that
would desensitize the entire issue of pricing models:
“By creating a profitability model that is completely
neutral as to how a matter is priced and billed, the
firms will create a system that can accommodate
whatever type of billing a client wants, and the firm’s
lawyers will no longer be schizophrenic about handling
billable matters one way and alternative fee/valuebased matters another way.”
Before embarking on any major pricing initiatives,
it is essential for firms to understand their
underlying economics and the consequent pricing
opportunities and constraints. Firms should have
a good understanding of, and ability to calculate,
the following.
The Components of Cost
These include salaries (blended or specific fee earner,
or FE), potential bonuses, attributable benefits (as a
percentage), office overhead, support staff overhead,
and expenses (non-chargeable). Firms must get on
top of cost accounting, with smartly allocated and
apportioned costs and without creating an industry
or constant stand-off between Finance and practice
groups. Firms should consult but need to give
Finance the ultimate authority and responsibility to
get the cost accounting right.
Margin and Profitability
Firms have to decide whether to allocate only direct
costs (to produce gross margin) or also overheads
(to produce net margin). It is likely that gross margin
may be more relevant, more controllable and more
understandable for the partner or legal team,
who cannot influence most overheads. Overhead
allocation that takes place below the gross margin
level can distort and confuse the accuracy of
matter-by-matter profitability and pricing analysis,
but working at gross margin level does require
considerable background financial analysis to agree
as to the acceptable profitability benchmarks and
targets for each area of the firm.
Notional Partner Cost Rate
The temptation for law firms to try to restate every
profitability metric in Profit PEP terms seems to be
overwhelming. It is entirely inappropriate in this context
(as in so many management information situations),
where firms need a fully costed view of a matter to set
against likely revenues. To achieve that, the large body
of time that is contributed by the most expert, senior
and expensive fee earners in the business needs to be
fully costed as a direct cost of sales. That means partner
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time must be costed, using an objective, “market”
figure per hour – certainly significantly in excess of the
cost rate for highest paid employed associate – that is
used to cost hours recorded, alongside associate salary/
remuneration data.
Average Selling Price
Firms should be watching the average selling
price (ASP) on a service-by-service basis, using
trends to provide an early warning into changing
market dynamics. Declining ASPs are an indicator
that something in the market is changing (e.g.,
competitors entering or existing competitors
lowering prices, a shift in customer requirements).
The Role of Analysts
A database of price, cost and profitability data is critical
to any good pricing going forward. Do you have the
data? The need for this data, in much higher volumes
and greater detail than firms could have imagined
just five years ago, is behind the creation of a role for
someone focused entirely on pricing. In fact, the role
generally becomes a much broader business intelligence/
management information (BI/MI) role. This person has to
drive forward toward the truth in terms of profitability
and productivity measurement, without flinching or
being diverted by the discovery of what work costs
and how profitable it is, which can be incendiary in
partnerships where reward and recognition are based on
revenue performance, not profitability.
Firms cannot simply address the isolated question
of the price for each matter and then hope that
the commercial and financial impact of getting
this right will flow through the business without
further changes. In today’s law firms, the legacy
of cost-plus, hourly rate pricing and information
asymmetry in favor of the firm has infected every
part of the fees and revenues process, end to end.
The entire operational model of how firms scope,
price, contract, record, report, invoice and collect
fees from clients will need to be redesigned as the
“new normal” establishes itself. Our previous Best
Practices Guides on legal project management
and legal process improvement cover many of the
complementary activities that law firms will need to
undertake. In subsequent Best Practices Guides in
this series, we will examine invoicing and eBilling,
and will examine these operational and process
changes in much more detail.
3.The End of Information
Asymmetry and the Rise of
Pricing Analysts
This analysis should not be bound by the firm’s
established performance measurement or financial
accounting rules and methodologies; they will typically
fail to deliver real insight into actual profitability,
designed as they are for assessing performance of
individuals, often using rigid and outdated accounting
approaches. The analysis should be independent
and unrestricted by the limitations of current
accounting, budgeting, performance management
and remuneration, or practice group-specific politics.
Producing business intelligence insights is a very different
activity than producing accounting reports. The pricing
manager has to analyze, filter and communicate his or
her outputs to everyone who needs to know and then
needs to act on these insights, not only to a small tier of
senior partners.
The market for legal services is often cited as an
example of information symmetry where one party
(usually the supplier) in a transaction has more or
better information than the other, creating a harmful
imbalance of power and distorting the market. As
the suppliers of legal services, law firms have, for a
long time, had information about the likely outcome,
current status and likely final price of a legal matter,
all of which they have not routinely shared with
clients. The information available to law firms is often
far from perfect, but the hourly rate pricing and endof-transaction billing model provided few obligations
on them to share the information they did have with
the client. Many economists believe that information
asymmetries like this adversely affect the quality of
decision making on the buyer’s part, both at the
outset, when selecting the right supplier firm and
agreeing to scope and price, and throughout the
transaction, when making tactical decisions about
how best to progress.
Firms need to introduce skills, whether centrally or
distributed around practices and teams, and tools that
enable detailed and fast scenario planning in order to
identify the various options for scoping, resourcing and
pricing. An experienced, probably centralized, resource
can create faster scenarios and more effectively
challenge procurement and analytic people on the
client side.
This section will examine the extent to which the
legal market has seen a rebalancing of this historic
imbalance in recent years and how much further this
could develop, considering the factors contributing
to this change, including legal project management
and AFAs, online information services, “Big Data”
and business intelligence tools, and the role of the
“pricing czar.”
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Redressing Information Asymmetry in the Legal
Market – Legal Project Management and AFAs
The advent of many of the trends discussed in
our Best Practices Guides around legal project
management and AFAs has introduced a series of
new pressure points for law firms and a series of new
access points for clients, where information is now
being transmitted to clients and has begun to redress
information asymmetry, although this trend is more
advanced in some areas of the legal market than
in others.
These new points of information transfer between
firms and clients that are helping rebalance
information asymmetry include:
•AFA pricing models which require law firms to
provide, upfront, a high degree of certainty around
the ultimate price for their work
•More rigorous application of the requirement
for upfront – and then regularly updated – fee
estimates for hourly priced matters
•Systemized and highly regulated panel review,
tender and auction/reverse auction processes
•Regular routines for firms to report matter status
and cost – sometimes weekly or daily
•eBilling applications that provide not only near-realtime information but also the tools for clients to
rapidly analyze and compare that data
•Billing guide, draft bill and bill approval routines
that provide clients with more advanced notice of,
and a defined process for reviewing, law firm bills
•Legal project managers who work to a clearly
defined legal project management methodology
and act as a single point of contact for matter
progress information and queries
Among firms responding to the 2015 Lex Mundi
Project Management (PM) survey, a number
explained how they were using PM tools. Among
these responses were references to use of project
management software, project management
training, system-generated alerts, project and matter
templates, case management systems, and checklists.
Even in the many practices within many firms
that have not yet applied formalized legal project
management processes, there is evidence that at
least some of these ways of providing clients with
more information are now regularly in use. By no
means do all law firms feel that this improvement in
information flow to their clients has been positive, as
we can see from some of the results of our 2015 AFA
survey, discussed in Section Two. Some firms certainly
feel that clients have used this new source of price
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data to aggressively drive down prices, playing firms
off against each other with little regard to quality
or relationship.
Procurement Functions and Pricing
Inside larger corporate clients, the governance
process for legal service buying decisions has been
evolving steadily over a decade or more now. The
traditionally relatively free hand of the general
counsel (GC) in selecting and instructing law firms has
developed into a broader consortium of stakeholders,
decision makers and gatekeepers. Finance functions
are more heavily involved in many cases, and the
corporate procurement function is regularly central to
the process. In itself, this shift does not immediately
introduce more information into the equation, but
procurement professionals (and to some extent
finance people) are trained and experienced in seeking
out data and comparatives, which are, indeed, the key
resources they work with. We have seen many of “Big
Law’s” largest and most important clients unlock new
information themselves, both through analyzing their
own internal databases and through finding thirdparty sources, something we will return to later in
this section.
Redressing Information Asymmetry in the Legal
Market: Qualitative Information
The big move toward greater legal information
symmetry in recent years has been in financial
data, as outlined above. But clients have also been
suffering from a dearth of reliable, objective and
usable qualitative information about legal service
providers. While the large directories are apparently
well-used, most savvy clients long ago stopped
regarding them as truly independent sources of
qualitative comparison. They certainly can’t provide
information about how a specific firm or partner will
carry out a specific transaction, the quality of the
team beneath partner level that will be doing much
of the work, or key elements of the firm’s service
provision. They are primarily reputational indices.
While clients who very regularly instruct lawyers
in similar areas of law can develop their own inhouse “directory” of quality and preference, those
with more occasional needs do not have this
option. Informal information sharing about other
corporations and clients will provide some of the
missing information, but it can be time-consuming
to collect, especially where the legal need is in a
highly specialized or arcane area, or out of the
immediate geography.
Clients will have access to the copious amounts
of information the law firm itself puts out into the
market via websites, brochures and pitch/tender
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documents about its lawyers and their experience/
quality. This is useful input, but for a long time
it served as the primary available source of this
information for clients, underlining the high degree
of information asymmetry surrounding the legal
buying process. For individual consumers of legal
services, this situation was even more acute, with the
client likely to be a less regular user of lawyers and to
be bombarded (since the removal of many advertising
restrictions on law firms) by highly slanted, paid-for
information about services and quality.
Law firms could do a much better job of publishing
citations and quotations that highlight the value for
money clients feel they have had. While the legal
market today seems to be awash with negative
comments from large corporations about lawyer
value, almost the only sources of positive citations
seem to be the new providers and alternative legal
service businesses. Too many law firms are scared
off by the fear that they will be seen as positioning
themselves as cheap and have done too little to
solicit genuinely positive statements from clients
about value for that reason too.
As in just about every other segment of the global
economy, this high degree of information asymmetry
about quality and performance of lawyers is under
assault in the digital age, with Internet-based and
crowdsourced information launching. Most lawyers
would, with justification, argue that version 1.0
of these kinds of sites too often is unreliable and
sometimes misleading for clients; in the UK the
infamous Solicitors From Hell website was taken
down after a challenge from The Law Society.
However, as in most industries, the increasing level
of participation in online feedback and ratings
services and the power of Big Data technologies are
transforming the space.
Third parties have identified the legal market as prone
to information asymmetries and often characterized by
“bet the house” transactions, in which clients are very
keen to avoid a wrong decision when selecting their
lawyer – whether they are acting for themselves or
their business. In the world’s largest legal market, the
US, lawyer reviews on sites such as Yelp have grown
exponentially. A large body of reviews and ratings
also exist on Google, on stand-alone legal services
marketplace Avvo, and on established sites such
as lawyers.com and Martindale-Hubbell. In the UK
checkaprofessional.com has been launched, mirroring
the well-known and TV-advertised Checkatrade site
for tradesman. Australia has lawchoice.com.au. The
large Australian-/UK-listed law firm Slater & Gordon
2
actively encourages clients to write reviews and post
them to online review community Trustpilot.
However, this trend is being seen not only in the
consumer legal market. AdvanceLaw is a service
designed by general counsel keen to improve the legal
market and provides customized support to general
counsel participants, helping them select firms and
lawyers for their legal needs, and helping them share
valuable performance information.
AdvanceLaw’s Firoz Dattu was quoted by LexisNexis
early in 2015 as saying, “General counsel will
increasingly combine insights from their billing data
(e.g., hourly rates, adherence to budgets) with
outside counsel performance scores (on things like
quality, responsiveness, expertise, efficiency) to
identify the best lawyers and firms for their work –
this will help in-house lawyers replace not just poor
performers, but even ‘average’ performers with
much stronger ones, thereby increasing legal market
competition. Related, general counsel reliance on
law firm pedigree will continue to decline.”2
Redressing Information Asymmetry in the Legal
Market: the Next Wave of Big Data Services
Speaking on a Totum Talks podcast in autumn
2014, Steven Allen, one of the UK market’s leading
champions for business change and innovation in
law firms, stated his view that Big Data and Pricing
were “inseparable for law firms today.”
Strictly speaking, that quote should probably be
extended to read “Big Data, Business Intelligence (BI)
and Pricing.” We are witnessing the rapidly evolving
sophistication of affordable BI tools that can analyze
and draw patterns, trends, comparisons and other
insights in real time to inform better pricing. That
complements the Big Data trend.
Big Data
Big Data is a digital age phenomenon that is
usually described as the exponential increase in
three characteristics of data:
1. Volume – the now nearly complete digitization
of legal bills, time records and costs information
has created a massive reservoir of electronic
data, down to individual timeline and activity
2. Velocity – the speed of business in general,
client demands for regular reporting specifically,
and the advent of eBilling and real-time
reporting dashboards have all driven the shift of
time and billing information from irregular and
very much “after the event” toward real time,
although we certainly are not fully there yet
“25 Predictions for the Legal Industry in 2015.” LexisNexis Business of Law Blog. LexisNexis 16 December 2014. Web.
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3. Variety – the ability of not just law firms
but also clients, and the third-party service
providers we examine below, to access a much
wider range of data to “crunch”; such data
goes beyond time and rate and includes factors
such as bar admission date, area of expertise,
firm size and the timekeeper’s location
The advent of this flow of information to corporate
clients has often had dramatic impacts on in-house
lawyers. Cliff Dutton, SVP & Director, Strategies and
eDiscovery, at AIG, explained how important it has
become to secure data in the legal procurement
process, at Bloomberg Big Law Business Summit
in July 2015:
Seeing what law firms look like is similar to
seeing what Pluto looks like, and the images
we’re getting of that today. We didn’t know
what Pluto looked like until we had the data.
In the future, we’ll have a better picture of law
firms, too. It will be glorious in its own way.
This move toward more sharing of analytics from
organization to organization is also stimulating the
drive toward more uniformity in activity and task
codes. Major strides in this direction have been made
by corporate legal buyers collaborating around ABA
standard codes, as well as common global standards
such as Legal Electronic Data Exchange Standard
(LEDES) and Uniform Task-Based Management
System (UTBMS).
The past few years have seen the advent of a legal
analytics industry – third-party commercial providers
of both business intelligence software tools and,
increasingly, the analyzed data itself. These providers
are not just offering a one-time snapshot of key
metrics, but also monitoring how these metrics
evolve over time – trends in average and realized
rate, workloads, discounts and more. Average hourly
rate may be a Key Performance Indicator for routine,
repetitive cases, whereas adherence to budget may
be more important for more complex cases.
The latest wave of legal spend analytics providers are
targeting clients beyond the huge corporates with
the largest legal budgets and pitching their services to
Small and Medium Enterprises (SMEs) with occasional
legal needs, where unexpected legal fees can be a
very unwelcome shock and do serious damage to the
P&L. These services are ingesting law firm invoices
and data in pretty much any format now, making it
a lot simpler and more attractive for clients to use
them and swelling the provider’s data banks. In some
cases, providers are encouraging large users of legal
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services to contribute anonymized spend data on a
regular basis, with the hook that this will allow them
to extend and improve their benchmarking services.
Providers are now also extending their services to
performing regular “health checks” on legal spend,
training in-house and procurement teams, and
offering subscriptions to a wide range of legal spend
benchmarks and analytics.
Analytics providers offer corporates, in particular,
a wide range of real-time rate benchmarking to
compare proposed rates against thousands of
similar lawyers across a number of factors, using
computer algorithms to quickly pinpoint appropriate
comparisons. The parallel trend for large corporations
to involve their growing procurement functions more
and more in legal spending decisions has accelerated
client adoption of these services. Procurement
professionals working on legal spend report that
industry benchmarking analysis is the most important
source of information that informs their work.
However, with the adoption of legal spend analytics
by large corporations in particular, law firms are
beginning to respond. Many are willing to pay to
subscribe to the same analytics and benchmarking
services their clients are looking at.
This trend is obviously not advancing quickly among
Lex Mundi member firms, however. Although a
number of 2015 survey respondents reported using
“legal project management tools/software,” only one
cited an analytics tool like the ones we are examining
here – Romulo Mabanta Buenaventura Sayoc &
de los Angeles in the Philippines is using Thomson
Reuters Serengeti Tracker.
Businesses providing shared billing information
to general counsel appear set to increase their
marketing and recruitment activity year on year, and
as they grow and adoption of their services spreads,
such activity is likely to have an impact on the price
performance and responsiveness of law firms.
Today’s Legal Spend Analytics and
Benchmarking Market
It is worth a brief look at some of the leading
analytics services and products now being offered
to in-house teams and others inside corporate
buyers of legal services.
Thomson Reuters Serengeti Tracker – this
analytics and eBilling service has now been extended
to include the GC Challenge, an intensive four-tofive-day program, or “health check.” The program
consists of on-site conferences, training sessions and
project management planning on legal department
best practices.
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Wolters Kluwer Enterprise Legal Management
& LegalVIEW – Enterprise Legal Management (ELM)
is the rebadged TyMetrix / Datacert legal spend
software. Wolters Kluwer Real Rate Report is now
a widely used annual benchmark for rates, trends
and practices, aimed primarily at corporate legal and
claims departments, but also at law firms looking to
inform their pricing. The LegalVIEW Data Contributor
Program is a fascinating extension that asks corporate
legal and insurance claims departments, as well as
law firms, to contribute anonymous billing and matter
data to LegalVIEW. There is no cost to contribute
data, and in return, data contributors receive special
access to and discounts on LegalVIEW analytics
products and services. Contributors have contributed
over $66 billion in legal spend data to date.
Thomson Reuters Peer Monitor – an online
platform for benchmarking a wide range of law firm
metrics (aimed at firms themselves), Peer Monitor
has both public rates and legal billing report services
holding thousands of law firm rates, down to
individually named timekeepers. Nearly half of the Am
Law 200 are reported to be subscribers, as are a large
number of midsize firms.
Sky Analytics (Huron) – a trailblazer for the new
generation of legal analytics, Sky supports legal
departments of all sizes “to better manage their
outside counsel” through data and dashboards
based on ingested legal billing information.
Legal Eye Analytics – this legal spend and process
efficiency analytics and benchmarking company was
established in 2005 and works, as is now common
across these providers, with both corporate legal
departments and law firms.
Apperio – this company claims to have helped
general counsel cut bills by an average of 12% and
is extending its benchmarking and analytics services
beyond corporate customers like LinkedIn and MGM
to law firms such as Olswang in the UK Top 50.
Viewabill – a common analytics exchange platform
for corporations and law firms, including the likes of
Reed Smith and Benesch Friedlander, its stated aim is
“improving the attorney-client relationship through
innovation.” This is achieved through a platform that
exchanges updates, status reports and time estimates
on a daily basis, giving clients automatic access to time
entries and the status of projects.
Valeo Partners – the Valeo Attorney Hourly Rates
and AFA Database identifies hourly rates and AFAs of
over 600 firms in 80 practice areas in over 300 cities
worldwide. Valeo lists actual rates – the rates actually
billed or mediated in court.
3
4
Redressing Information Asymmetry in the Legal
Market: the Rise of the Pricing Czars
Major corporations’ appointment of legal operations
professionals into their legal function is a fast-moving
trend, especially in the US. Some law firm partners
believe that “this could level the field,” noting that
legal operations managers utilize performance metrics
and other data to choose their outside counsel. These
legal operations managers are looking to firms to
supply more of the critical data they need. The parallel
trend has been to appoint pricing managers at large
law firms. Sometimes they’re directors of pricing, chief
pricing officers, or simply pricing analysts or managers.
Some are directors of client services, analytics or
value. Patrick Johansen, a legal pricing consultant and
thought leader, keeps a running roll call of pricing
officers in the US firms that, at the last count (mid2015), included 67 Am Law 200 firms (Reed Smith
counted no less than seven). “Once law firms find
these people, they understand the value, and that’s
why, oftentimes, firms expand pricing functions,”3
according to Johansen. The main aim of these
appointments has been to arm law firms with the real
cost information about their matters that gives them
at least a chance of responding to demands for AFAs,
as well as big discounts on hourly matters while still
making money.
According to the article “What the Rise of Pricing
Officers Says About Big Law’s Future,” 76% of big
US firms now employ some form of pricing officer.4
We conducted our own, supplementary Lex Mundi
member firm survey on their current and planned
use of pricing professionals in early 2016. Only 17%
of responding firms reported having a permanent,
designated pricing professional, although almost
all of these (80% of them) were in North America,
underlining how much more pricing pressure larger
firms in the US and Canada are facing. A further 8%
reported that existing members of staff had some
clear responsibility for the firm’s pricing. Taking into
account the firms who said they would or might
employ a pricing professional in the next two years,
just over 40% of Lex Mundi firms seem likely to have
these roles in place by 2018.
Roles in Lex Mundi firms have a wide range of titles
and job descriptions – these include Head of Pricing
and LPM (Clayton Utz, Lex Mundi member firm for
Australia), Director Practice Development, Pricing
and Knowledge (Blake, Cassels & Graydon LLP,
Lex Mundi member firm for Alberta, Ontario and
Quebec, Canada), Firmwide Pricing Manager (Morrison
& Foerster LLP, Lex Mundi member firm for USA,
California), Director of Strategic Pricing and Analysis
Patrick Johansen, “Roll Call.” Patrick Johansen (patrickonpricing.com). 9 April 2016. Web.
“What the rise of Pricing Officers says about Big Law’s future.” Aric Press, The American Lawyer. 3 July 2014. Web.
© Copyright 2016 Lex Mundi
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(Butler Snow LLP, Lex Mundi member firm for USA,
Mississippi) and Head of LPM (Advokatfirmaet
Thommessen AS, Lex Mundi member firm for Norway).
The hiring of pricing professionals – and the
redeployment of other smart analysts and finance
people in firms that can’t justify a brand-new hire –
can drive a big improvement in the detailed metrics
on time, costs, utilization and profitability in those
firms. Corporate clients want these numbers, metrics,
charts and trends. As Adobe Systems Inc. associate
general counsel Lisa Konie puts it, “We’re running
our own data, asking for their data and prompting
better conversations.”5 Law firms have to work out
to what extent they cede all this information, only
recently made available to inform their own decisions
internally. In some instances prospective clients are
demanding so much new information and analysis
that these demands can undermine the business case
for pitching from the law firm’s side. But it is clearly
tough to justify not releasing data to one of your
best clients. As Konie puts it, “You have volumes of
data; we only have ourselves[. I]f there’s anybody that
should be able to price out an AFA, it’s more likely
you than us.”6
Pricing officers in law firms and the legal operations
managers in corporations are increasingly working
together face-to-face on complex pricing and
negotiation. Clients recognize that the lawyers who
do the work in law firms are not data scientists. For
law firms, having a professional analyst with all the
data at his or her fingertips lead the line on price
negotiations can also be very effective, providing a
strong empirical underpinning to the firm’s position.
The Seesaw: Could Information Asymmetry Tip
in Favor of the Client?
The economics of information asymmetry identifies
many instances in which the buyer holds more
information than does the seller and is able to
protect or withhold this (some well-examined
examples include the markets for financial products,
including insurance). There is a growing concern
among some managers and partners inside law firms
that the legal market might tip in a short space of
time from information asymmetry in the supplier’s
favor to information asymmetry in the customer’s
favor, rather than settle into an equilibrium of
perfect information symmetry. In this scenario,
clients would be able to access online, Big Dataderived intelligence about the pricing and value of
legal services easily, quickly and cheaply, taking in
data from an incredible array of local and remote
5
6
law firms and alternative legal providers. Many law
firms, asked to pay considerably more for access to
valuable benchmarking information and lacking the
investment in their own internal analytics capability,
will have only a limited view of their own internal
data, with comparability issues often limiting this
to just the past few years. In this situation there is
potential for the informed clients to assert strong
control over all but the most niche of legal markets.
The specter of market economics more akin to highly
transparent markets like groceries/consumer goods
(where supermarkets such as Tesco have margins of
just 1%) is one that law firms would certainly want
to avoid – something that will require more proactive
and significant investment in their information and
analytics capability.
How could this asymmetry in the clients’ favor happen?
•Large clients with multiple matters across a panel
of law firms/providers consolidate, mine and
analyze their own extensive data and establish
pricing parameters and standards for each
combination of matter criteria.
•Corporates, even without the volume of legal
work outlined above, collaborate through general
counsel organizations, knowledge-sharing groups
and subscription/consolidation analytics services to
share pricing data and establish a broader set of
benchmarks for every type of base-case matter (the
“vanilla” benchmark) and key types of variation
(e.g., with specific criteria for extra complexity,
geographical scope, value of transaction).
•Technology-based legal spend analytic tools, apps
and software designed to consolidate and crunch
pricing data become widely adopted by clients and
increasingly by firms.
•Accessible and free-to-use (“freemium”) online
sites – especially those targeted at consumers
and SME businesses – provide “compare the
market”-type information for common, generic
transactions. Even though real-life matters may
have multiple variations from the norm, clients
will be able to ask firms to justify every additional
dollar by which the quoted price exceeds the
market norm, driving firms toward standard
industry pricing.
•Governments, regulators and institutions (e.g., large
financial institutions whose legal spend in an area
is large enough to “make the weather” in some
submarkets) impose or recommend fixed pricing
(could be similar to an RRP) for specific B2C services.
“What the rise of Pricing Officers says about Big Law’s future.” Aric Press, The American Lawyer. 3 July 2014. Web.
Ibid.
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•Press commentary and analysis shift from
discredited PEP and rate-card measures toward
price-for-the-job analysis across firms. Lead articles
and insight from legal press, large accounting firms
and consultancies on specific matter types and
markets call out the anomalies and force “outlier”
firms to either justify or reduce their price point.
•Well-funded new entrants utilize TV and online
campaigns (following the likes of LegalZoom in the
US), high-profile branding, and new hires to attempt
to adopt a price leadership strategy and subvert
entire segments of the market (as has begun to
happen already in the UK’s personal injury market,
where a small group of alternative business structures
have grabbed over 30% of the market since 2011),
using fixed pricing and high value-for-money
positioning. Per The American Lawyer: Special Report
“Big Law’s Reality Check” (October 2014):
For all the confident promises and hyperbole,
nothing else has arrived to replace large firms.
Not technology, not outsourcers, not nimble
minifirms and not alternative service providers.
Undoubtedly they’re coming, marching forward
to capture bits and pieces of the market. These
new players will continue to change the practice
and business of law, at least on the margins. And
many of their best gambits will be absorbed and
co-opted by the incumbent firms.7
•Some firms in almost every market segment will
indeed “co-opt” AFA matter pricing, unparalleled
levels of transparency and, in some cases, a
discounter positioning to attempt to seize rapid
market share. This is not going to be restricted to
commodity legal services. Large, corporate law
firms can offer, as big accountants do, fixed price
guarantees or loss leader standard pricing on
regular services, with additional cost for variations
of complexity and scope in order to attack the
competition and secure other lucrative streams of
work not included in the offer.
•There could be much wider adoption, beyond just
the largest corporations, of eBilling and related
analytics tools that easily and quickly ingest law
firm bills and then benchmark, sense-check and
analyze them. The likely result, within a few years,
will be that matters priced and billed using a
time-based, hourly rate model will be subject to an
unprecedented degree of automated, comparative
scrutiny. Three things will happen:
G
reater transparency will ensure that firms can
bill only what has absolutely been agreed in
7
8
advance and done by agreed fee earners on
agreed activities
N
oncompliant time and costs will almost always
be written off or discounted, reducing the
range of variability between time spent on
similar matters
C
lients (and some firms) will utilize the huge
volume of available data about hourly priced
matters to identify the “right” fixed fee/AFA
structure for those matters in the future
The impact of all three results will be to significantly
reduce the differential between billing on a time
basis and billing on a fixed or alternative fee basis.
•Although not a “true AFA” strategy, the continued
focus of in-house legal functions on achieving
budget cuts through driving discounts against rate
card arrangements rather than more sophisticated
(but less predictable) alternative fee arrangements
may prove to be the most important catalyst. As
these negotiations become more enabled by and
reliant on benchmarking information and these
benchmarks for particular matter types become
more accurate (through inclusion of more data
points and ever-improving analytical tools), the
bulk of clients will be pushing toward a similar
narrow range of discount “prices for the job”
with all law firms. The result of this continued
downward pressure to discount, combined with
better, more sophisticated and more accessible
price analytics, could well be the emergence
of a standard price for most common types
of legal work, with law firms able to compete
only by adding substantial additional value or
discounting further. In this way, hourly pricing
of work gradually morphs into fixed pricing over
time, a route that has been taken by many oncespecialized markets.
•Law firm consultant George Beaton’s benchmark
research showed that, year on year, “clients
perceive the average price in the market to be
falling, and so when clients see that, it encourages
them to negotiate harder,”8 creating a cycle of
downward pressure that will not necessarily
be alleviated by brighter prospects for the
overall economy.
•As the tactics of the large corporate clients buying
legal services become more mainstream, publicized
and communicated, they spread to midsized firms
and to high-value individual clients. Each client
has a different perception of value and a different
approach to negotiation and relationships with a
“Special Report: Big Law’s Reality Check.” The American Lawyer. The American Lawyer 29 October 2014. Web. 29 October 2014, p.52.
“Law firms failing to capitalise on greatest opportunity: Beaton,” Australasian Lawyer. Australasian Lawyer 13 March 2014. Web.
© Copyright 2016 Lex Mundi
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small set of law firms. This will produce variations
in the price/value deals done across the market,
as fewer and fewer matters will be priced on a
standard hourly rate basis and important clients
of all firms leverage their buying power. The
industry may be creating a legal service version of
nanoeconomics, in which the pricing of offerings
at the individual client/firm level is transmitted and
communicated by benchmarking, legal analytics
and knowledge sharing and driving the pricing of
offerings at the microeconomic industry level.
4. A
New Pricing and
Negotiation Skill Set and
Mindset for Lawyers
In the introduction to this Best Practices Guide we
outlined the case for law firms to urgently prioritize two
streams of pricing initiatives – both mid-to-long-term
strategic change and short-term “catch-up,” in which
a fundamental set of best practice standards that have
not always been observed consistently across firms in
the past are relaunched and firmly embedded.
This final section refocuses attention back on those
short-term activities that all firms should be doing to
fix gaps and ensure they are doing all of the basics
right. Working with all of the partner group, both
one-on-one and collectively, and engaging with their
immediate challenges, clients and confidence issues
has been proven to be a very effective approach
for firms to tackle these short-term issues. In recent
years, consultant and former law firm managing
partner Richard Burcher and his Validatum business
have been leading a series of these interventions
across a large portion of the UK’s Top 100 law firms.
Managing partner satisfaction ratings with these
exercises have been consistently very high, and so
Burcher is a man worth listening to.
Burcher comments that “the road to hell is, so the
saying goes, paved with good intentions. Firms often
know that pricing is something that they need to
address, or at least would benefit from addressing but
aren’t quite sure where to start.”9 In the Validatum
model, that starting place requires law firms to break
down their pricing initiative into three areas:
1. Pricing governance and policy
2. Pricing analytics and reporting
3. Pricing resources, skills and execution
9
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. Embed this within any legal project
management methodology and training your
firm is operating. Our 2015 Lex Mundi survey
showed that a number of member firms were
planning to either introduce or extend legal project
management programs in 2015-16, including
NNDKP in Romania, Bernstein Shur in Maine,
Murtha Cullina in Connecticut and Alston & Bird
in Georgia.
•Pricing policies that are well-understood and
universally enforced. For example, do you have
firm-wide policies about what is written off, by
whom, for what reason and up to what level?
•Strong pricing leadership from the top of the
firm. As leading law firm consultant Bruce
McEwen of Adam Smith, Esq., warns, “We know
what happens to the best of intentions. In our
experience, even the best pricing programs will fail
in the long term without a deliberate commitment
to overcome the entrenched habits and shifting
priorities that doom most change programs.
Ingraining pricing success over the long term
requires putting in place an ‘influence model’ that
includes role modeling, fostering understanding
and conviction, developing talent and skills, and
implementing reinforcement mechanisms.”10
•Challenge the preoccupation with turnover as
opposed to profit, clarify how law firm economics
work and why profit and cash are so vitally
important, and avoid undermining that message
with internal measurement and reward policies.
•Establish a coherent strategy for pricing
across multiple offices, especially if you have
international offices.
•Tackle any price and market position disconnect.
Firms often do not understand the impact price has
on perception of quality, so they allow lowballing
and under-confident pricing to undermine their
desired market position.
•Establish regular, high-quality training on pricing,
and make it mandatory for partners and anyone
leading pricing negotiations.
•Define your strategy for next year’s prices. Ask how
you can get better returns for your work (even in
the midst of demands for AFAs and discounts).
Perform scenario planning, conduct sensitivity
“So, You’re Going to Nail This Pricing Business in 2015?” Richard Burcher, Validatum.com. Web. 29 January 2015.
“Pricing Power,” Bruce McEwen. Adam Smith Esq. Web. 19 March 2015.
10
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Page 11
analysis and create a communications plan that
goes way beyond what Richard Burcher calls “the
banal and asinine annual rate review letter.”11
Many classic business pricing theories lay out
three fundamental pricing strategy positions that
organizations can choose from:
1. Penetrate: Setting a low price, which leaves
most of the value in the hands of your
customers, thereby shutting off margin from
your competitors.
2. Skim: Initially setting a relatively high price to
reinforce your value and capture the profit you
need in order to invest in more innovation.
3. Follow: Setting price based on your largest
competitor or a dominant input so that you
track changing market conditions.
Pricing Analytics and Reporting
As we have seen in previous sections, there is a huge
amount of activity inside firms and in-house legal
departments around improving analytics that support
pricing decisions. However, firm management can take
some essential steps that don’t necessarily require largescale investment before starting. The UK legal market’s
leading pricing expert, Richard Burcher of Validatum
advises firms on some practical initial steps:
•Focus attention not on how much data you can
extract from practice management and other
software but on producing actionable insights to
the right people at the right time.
•Collate and make available as much historical
analysis of pricing and profitability as possible, and
ensure the firm applies this learning, especially
when setting fixed fee arrangements. Toby Brown,
one of the founders of the P3 legal pricing group,
regularly presents to groups of law firm pricing and
analytics managers and recommends that firms
also mine the date from their experience base
of lost tenders and pitches to learn what pricing
positions have not worked.
•Invest in proper analytics capability, “and not
simply something cobbled together in an
Excel spreadsheet.”12
Pricing Skills, Resources and Pricing Execution
Burcher puts particular emphasis on getting pricing
execution right, something that is still most commonly
the responsibility of individual partners and for which
lack of training, skills and knowledge of the latest
trends and insights can lead to expensive mistakes
that are repeated across a firm, day after day:
11
12
•Understand the value you are delivering, how
different clients perceive it and how to influence
that, including how clients perceive the stored
value of your IP, research and insights (not just,
“Well, you’ve done this before already, so it
shouldn’t cost us much”).
•Address a lack of price negotiation skills and
awareness or understanding of the many pricing
strategies and tactics available right now.
•Ensure that pricing is a good fit for the client and
the firm. Burcher’s most oft-repeated mantra is
“Price the client, then price the job.”
•Support your partners and lawyers with
valuable pricing collateral, templates and pricing
precedents. You are setting them up to fail if you
don’t provide these and update them regularly.
•Operate a multidimensional approach to pricing
(rather than just printing out your time records).
Burcher is particularly strong on citing legalization,
regulation and precedent for lawyers to take a
more rounded, qualitative approach and actually
getting uplifts, in appropriate circumstances,
compared to a pure hourly rate basis. One of
his favorite judicial perspectives is that of J.
Donaldson in Property and Reversionary Investment
Corporation Limited v. Secretary of State for the
Environment [1975] 2 All ER 436 at 441, in which
Donaldson made the point that the business of
determining a fair and reasonable fee “…is an
exercise in assessment, an exercise in balanced
judgment – not an arithmetical calculation …”
•Tackle your management of branding, marketing,
bids, pitches, tenders and RFPs in parallel with your
other pricing initiatives.
The role of thought leadership and brand in
communicating any shift in your approach
to pricing is critical, and often overlooked in
pricing initiatives. But failure to galvanize your
Marketing and Communications operations in
complete support of any change to your pricing
strategy will result in serious under-performance
as the firm fails to deliver attractive and
compelling messages to clients, and – worse
still – individual partners and parts of the firm
contradict or confuse the message.
•Confidence is absolutely critical to good pricing
behavior. This is perhaps Burcher’s core message
when working with groups of law firm partners.
He coaches them to negotiate prices confidently
and to overcome the constant fear of losing the
client and/or fear of losing the job. Ed Wesemann
“Pricing Power,” Bruce McEwen. Adam Smith Esq. Web. 19 March 2015.
“So, You’re Going to Nail This Pricing Business in 2015?” Richard Burcher, Validatum.com. Web. 29 January 2015.
© Copyright 2016 Lex Mundi
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Page 12
of Edge International has a great line on gauging
whether the partner has the price about right: “I
know one managing partner who believes in the
‘gag threshold’ method. That is, when a client
opens a bill [NOT a quote], the dollar amount
should be high enough to cause a client’s throat
muscles to constrict, but not so high that it causes
the client to toss the bill in the trash.” Wesemann
describes this approach to pricing as “a game of
brinkmanship.”13
Clearly, these issues can’t all be tackled overnight
or simultaneously. Tackling them is a question of
prioritization, looking at where the issues are most
common and where remediation would be most
valuable. Firms would do well to also consult the
recent Lex Mundi Best Practices Guide to Legal
Project Management, to which consultant Nick
Jarrett-Kerr contributed his “Seven Sins of poor fee
budgeting and pricing”:
•Over-optimism about time and resources
•Not agreeing to anything at all on fees up front
•Failure to discuss changes to scope during the
matter with the client
•Fee earners spend too much time without budget
control or restraint
•Other practice groups’ time is under-scoped,
over-recorded or both by the lead group
•Replacement lawyers join a matter that is not
introduced to or recognized by the client and
therefore rack up time getting up to speed
•Inefficient or nonexistent delegation
Richard Burcher uses an analogy that likens the
carefully considered, client-specific and confident
quote to pricing a laser-guided missile, and the bland,
ubiquitous, homogenous, one-size-fits-all reflex
use of hourly rates as a “dumb bomb.”14 He would
appreciate the similarly explosive analogy used by
Mark Stiving, a US-based pricing consultant, author
and blogger, on his blog, http://pragmaticpricing.com/,
comparing pricing to a nuclear bomb:
“First, pricing can be very destructive. When
you lower your prices, that certainly hurts your
competitors. When they retaliate, and they
almost certainly will, that will hurt you as well. In
the end, the most likely result is lower industry
profits, including yours.
“Second, you can’t un-explode a nuclear bomb.
Similarly, it is extremely difficult to raise prices
again once a price war begins. Companies rarely
13
14
15
want to unilaterally raise prices and risk giving up
market share to their competitors. Coordinating
price increases in an industry is challenging and
it’s illegal if done through direct communication.
”Third, pricing can be considered a deterrent. Your
competitors are much less likely to lower prices
if they believe you are going to follow suit and
not let them easily take your market share. The
real trick to this is to monitor and control your
costs. You never want to be in the position
where a competitor can price below your cost
of doing business.”15
The Best Practices Pricing Checklist: You
Should Get These Short-Term Outcomes
from any Serious Pricing Initiative
Many firms are launching pricing initiatives
and looking for short-term results. If you
undertake an initiative and aim to fix some of
the short-term basics we’ve focused on in this
final section, your objectives should include the
following outcomes as a minimum:
• D
efine, adopt and explain a pricing strategy
and, specifically, a portfolio (or menu) of pricing
methods that partners and fee earners can
choose from and offer to clients, incorporate
time-based charging where appropriate
alongside a range of AFA models. Identify
clearly where they would be most appropriate.
Chris Bull recommends that firms include
hourly rate pricing as part of a portfolio rather
than as a preferred, historic default “norm”
against which all other models are alternative
fee arrangements; this reflects that this model
can still work well from a clients’ perspective
where it is crystal clear that the firm is being
transparent, keeping hours down to the
essential and providing exceptional value.
• Adopt and distribute a pricing tool that
enables fee earners, and finance pricing
and business development professionals to
calculate fee quotes, model fixed/capped/
retainer fees and discounts, and compare
options, routing the more complex and highrisk calculations to specialists.
• O
ffer ongoing one-to-one coaching and support
for partners and others with price setting and
negotiation responsibilities. Maintain a “pricing
confessional” environment: workshops often
provide a rare “anonymous pricing” outlet
for partners who are able to ask, “How do I
H. Edward Wesemann, “Creating Dominance: Winning Strategies for Law Firms” (Bloomington: AuthorHouse, 2005), p.56.
How to leave fees on the table: 21 things I must ignore?” Richard Burcher, Validatum.com. Web. 16 March 2014.
“Pricing is…the nuclear bomb of business.” Mark Stiving, pragmaticpricing.com. Web. 12 September 2013.
© Copyright 2016 Lex Mundi
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Page 13
respond?” questions and tell their own stories
about real-life pricing problems.
• A
ppoint, redeploy or designate (depending
on the size of your firm and investment
availability) a pricing specialist or analyst.
• R
einforce profitability awareness and provide
suitable gross margin/contribution benchmarks
and targets using training, materials, webinars
and workshops based around the Best
Practices Guides and active price coaching.
• R
aise partner awareness and knowledge of
pricing issues, which can lead to improved
matter profitability and client satisfaction
within six months.
• L ead an interactive discussion among partners
and others in management to determine how
the firm’s client proposition(s) should relate to
value, price and client service.
• P roduce content to support the refresh of
the firm’s marketing, thought leadership
and business development material in line
with the pricing strategy. Build a clear and
confident statement on the available price
portfolio options.
• U
pdate the categorization of work types, file
opening forms and key data fields required for
analysis of historic and current-year pricing.
• U
pdate profitability and matter performance
reporting, link reporting on actual profitability
back to price modeling, and utilize actual
profitability reporting to inform/improve the
pricing model.
• Implement simple automated alerts/reminders
from practice management systems when actual
time is close to the estimate/quote. Take care not
to use these excessively and indiscriminately, as
they can quickly get ignored.
Conclusion
Across two parts, the Best Practices Guide on AFAs
and Next Generation Pricing Strategies has covered
many aspects of the strategic and operational aspects
of legal services pricing and mechanisms. However,
in Part 2, our aim has been to bring the focus back
to the most immediate and essential actions every
Lex Mundi firm should aim for. Many member firms
will have already begun to implement many of these
actions and can check off some of the items on the
checklist above. Nevertheless, as reflected in the
most recent Lex Mundi survey, there is more work
to be done. While the network’s adoption of new
pricing techniques and models continues to evolve,
its members will certainly benefit from Lex Mundi’s
continued support in this area.
Results of Lex Mundi AFA/
Pricing Surveys
Lex Mundi member firms have graciously completed
two surveys on AFAs and pricing. Access these surveys
and responses at http://www.lexmundi.com/Document.
asp?DocID=8384 and http://www.lexmundi.com/
Document.asp?DocID=8389.
• S chedule and plan budget and rate setting; an
annual review of standard rate-card increases
should be accompanied by a regular review
of all alternative pricing options and a clear
communication plan for clients.
• Introduce additional pricing training and
support for associates and introduce elements
of this training to junior levels of qualified
lawyers in order to develop skills and
awareness well in advance of partnership.
• C
reate specific pricing plans (one page each)
that explain to client service teams the work
done on value perception, specific stakeholders,
client pricing and billing authorization and
approval routines, the role of procurement and
how to interface, and the role of operations
management and how to interface.
© Copyright 2016 Lex Mundi
www.lexmundi.com/bestpracticesseries
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FURTHER READING
Books and Reports
• Legal Project Management, Steven B. Levy (DayPack Books, 2009)
• Facing Up to the Challenge – Law Firm Metrics, Michael Roster (Association of Corporate Counsel, 2013)
• Law Firms in the Digital Age, Chris Bull (Ark Group/Managing Partner, 2013)
• Value Merchants: Demonstrating and Documenting Superior Value in Business Markets, James C. Anderson,
Nirmalya Kumar, James A. Narus (2007)
• Alternative Fees for Litigators and Their Clients, Patrick Lamb (ABA, 2014)
• Pricing Legal Services, Pauline Doohan (Legal Monitor, Feb. 2015)
• Smarter Pricing, Smarter Profit, Stuart J. T. Dodds (ABA, 2014)
• The Lawyer’s Guide to AFAs and Value Pricing, ed. Laura Slater with Toby Brown / Vincent Cordo et al.
(Ark Group/Managing Partner, 2014)
• Creating Dominance: Winning Strategies for Law Firms, H. Edward Wesemann (AuthorHouse, 2005)
Articles and Online
• Validatum Articles, Richard Burcher, http://www.validatum.com/articles
• 2015 Report on the State of the Legal Market, Center for the Study of the Legal Profession / Thomson
Reuters Peer Monitor, http://www.law.georgetown.edu/academics/centers-institutes/legal-profession/upload/
FINAL-Report-1-7-15.pdf
• Introduction to Legal Project Management, Tina Larsen (COO, Kromann Reumert – Lex Mundi Vienna
Presentation 2014)
• Law Firm Leaders Struggle With Setting Firmwide Rates, www.thelegalintelligencer.com/id=1202679154052
• Pricing to Create Shared Value, https://hbr.org/2012/06/pricing-to-create-shared-value
• Special Report: Big Law’s Reality Check, http://www.americanlawyer.com/id=1202674273215/Special-ReportBig-Laws-Reality-Check#ixzz3PvSJteWd
• Riverview Law: Applying Business Sense to the Legal Market, Heidi K. Gardner & Silvia Hodges Silverstein,
Harvard Business Review, June 2014
• Five (and a Half) Strategies that Will Win You More Projects at Higher Fees, David A. Fields,
http://www.davidafields.com/
• Why Is It Good to Separate Value-Based Pricing from Costing? Tim J. Smith, Managing Principal, Wiglaf
Pricing, http://www.wiglafpricing.com/index.php
• Fixed Fee Menu Pricing in the Legal Sector: A Research Report, OMC Partners / Isential Services, 2014,
http://www.omc-partners.com
• The Future of Buying Legal Services, Professor Stephen Mayson, stephenmayson.com
• The Death of Information Asymmetry, Timothy B. Corcoran, www.corcoranlawbizblog.com/2013/09/
information-asymmetry/
• Pricing Roll-Call, Patrick Johansen, http://www.patrickonpricing.com/library
• The American Lawyer, Annual Am Law 200 survey, http://www.americanlawyer.com/id=1202742768785/
Survey-Firm-Leaders-Are-Optimistic-Going-Into-2016#ixzz3t3Wn40y0
• Handbook for Value-based Engagements, Crowell & Moring and ACC, https://www.acc.com/advocacy/
valuechallenge/toolkit
© Copyright 2016 Lex Mundi
www.lexmundi.com/bestpracticesseries
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ACKNOWLEDGEMENTS
Lex Mundi wishes to thank Chris Bull for assisting in the preparation of this guide. Chris has been a leading
practitioner and pioneer in the field of professional firm business management for over 17 years. He is a founding
executive director at consultancy Kingsmead Square, whose advisors specialize in the swift, successful execution
of business plans and transformation of operational and financial performance. Chris has advised on strategy,
innovative transformation programs, outsourcing and shared service strategies, as well as on the creation of a
string of high-profile new entrant alternative business structures in the UK market. For more on Chris Bull, please
click here.
Lex Mundi would also like to acknowledge the following member firms for their valuable contributions to
this guide.
Adler Pollock & Sheehan P.C.
Advokatfirman Vinge KB
Ali Budiardjo, Nugroho, Reksodiputro
Alston & Bird LLP
Arias, Fábrega & Fábrega
Armstrong Teasdale LLP
Barrow & Williams LLP
Bass, Berry & Sims PLC
Bentsi-Enchill, Letsa & Ankomah
Bernstein Shur
Bowman Gilfillan Africa Group
C.R. & F. Rojas - Abogados
Case Lombardi & Pettit
CHSH Cerha Hempel Spiegelfeld Hlawati
Clayton Utz
Crowe & Dunlevy
Day Pitney LLP
Demarest Advogados
Dr. K. Chrysostomides & Co LLC
Dudley, Topper and Feuerzeig, LLP
Estudio Olaechea
Hamel-Smith
Hassan Radhi & Associates
JPM Jankovic, Popovic & Mitic
Klavins Ellex
Koep & Partners
Kromann Reumert
LOGOS Legal Services
Maclay Murray & Spens LLP
Marval, O’Farrell & Mairal
Maynard Cooper & Gale P.C.
Mayora & Mayora, S.C.
McKinney, Bancroft & Hughes
Michael Best & Friedrich LLP
© Copyright 2016 Lex Mundi
www.lexmundi.com/bestpracticesseries
USA, Rhode Island
Sweden
Indonesia
USA, Georgia
Panama
USA, Missouri
Belize
USA, Tennessee
Ghana
USA, Maine
South Africa
Bolivia
USA, Hawaii
Austria
Australia
USA, Oklahoma
USA, New Jersey
Brazil
Cyprus
USA, Virgin Islands
Peru
Trinidad and Tobago
Bahrain
Serbia
Latvia
Namibia
Denmark
Iceland
Scotland
Argentina
USA, Alabama
Guatemala
Bahamas
USA, Wisconsin
Page 16
Moghaizel Law Office
Lebanon
Morais Leitão, Galvão Teles, Soares da Silva & Associados
Portugal
Murtha Cullina LLP
USA, Connecticut
Myers, Fletcher & Gordon
Jamaica
Nestor Nestor Diculescu Kingston Peterson
Romania
Nishimura & Asahi
Japan
Pekin & Pekin
Turkey
Pellerano & Herrera
Dominican Republic
Penkov, Markov and Partners
Bulgaria
Pérez Bustamante & Ponce
Ecuador
PestalozziSwitzerland
Rajah & Tann Singapore LLP
Singapore
RIAA Barker Gillette
Pakistan
Richards, Layton & Finger, P.A.
USA, Delaware
Rodey Law Firm
USA, New Mexico
Romulo Mabanta Buenaventura Sayoc & de los Angeles
Philippines
Roschier, Attorneys Ltd.
Finland
Rose Law Firm, a Professional Association
USA, Arkansas
Simpson Grierson
New Zealand
SkrineMalaysia
Thompson Dorfman Sweatman LLP
Canada, Manitoba
Tilleke & Gibbins
Thailand
Uría Menéndez
Spain
VanEps Kunneman VanDoorne
Curacao
Wardyński & Partners
Poland
Womble Carlyle Sandridge & Rice, LLP
USA, North Carolina
Wyche, P.A.
USA, South Carolina
Zepos & Yannopoulos
Greece
For further information about this best practices guide, or if you have any questions or suggestions regarding
future best practices guides, please contact Sandra Jacobson, Senior Manager, Professional Development, at
[email protected].
© Copyright 2016 Lex Mundi
www.lexmundi.com/bestpracticesseries
Page 17
ABOUT LEX MUNDI
Lex Mundi is the world’s leading network of independent law firms with in-depth experience in 100+ countries.
Lex Mundi member firms offer clients preferred access to more than 21,000 lawyers worldwide – a global
resource of unmatched breadth and depth. Each member firm is selected on the basis of its leadership in –
and continued commitment to – its local market. The Lex Mundi principle is one independent firm for each
jurisdiction. Firms must maintain their level of excellence to retain membership within Lex Mundi.
Through close collaboration, information-sharing, training and inter-firm initiatives, the Lex Mundi network is an
assurance of connected, on-the-ground expertise in every market in which a client needs to operate. Working
together, Lex Mundi member firms are able to seamlessly handle their clients’ most challenging cross-border
transactions and disputes.
Lex Mundi member firms are located throughout Europe, the Middle East, Africa, Asia and the Pacific,
Latin America and the Caribbean, and North America. Through our nonprofit affiliate, the Lex Mundi Pro Bono
Foundation, members also provide pro bono legal assistance to social entrepreneurs around the globe.
Lex Mundi
The World’s Leading Network of
Independent Law Firms
2100 West Loop South, Suite 1000
Houston, Texas USA 77027
1.713.626.9393
www.lexmundi.com
© Copyright 2016 Lex Mundi
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Page 18