In the 1980s it took Concord a little under 3 hours to fly New York to London.
Today [2023], 40 years later, the quickest you can travel that exact same route (New York City – London) is a little over 5 hours.
…And this is why you should always bill by the hour – it ensures your clients get the best possible experience (after all, why would you want to fly Concord!) and it incentives innovation!
Photo credit to Nick Fewings
Tesla, Elon Musk’s EV carmaker, published its Q3 results earlier today (Australia time). Profits plunged 44 per cent. But, from my perspective this was the interesting part: “after it cuts prices to boost sales“.
Let’s unpack that for a second: Tesla “slashed prices by around 25 per cent in the United States during the last year” – “putting the priority on sales rather than profit“.
As it happens, this is also a common trait of professional services firms: prioritizing getting the deal done over making an actual profit – including agreeing to heavy “volume discounts”.
As the Tesla results show though, any price discount you give comes directly from profit – not sales revenue.
So the price discount you offer your clients is essentially compounded on your bottom line – 10% is not 10%, it’s more like 30%.
Or in the case of Tesla: a 25% price discount has resulted in a 44% plunge in profit.
Something to think about when you are next thinking about what pricing options you have available to you.
And please, don’t follow this advice:
“I view it as a way to defend market share at the expense of margin” .
Kevin Roberts, director of industry insights and analytics at CarGurus, an online auto sales site
In professional services firms, market share should never Trump (pun intended) profit.
As usual, if you need any help with any of this, feel free to reach out.
This week’s #tbt (Throwback Thursday) recommendation is a post I wrote back in August of 2018 – ‘Why most law firms don’t need to hire a head of pricing‘.
The reason I’d like to suggest that you go back in time and read an article I wrote back in 2018 is because of something I read on law.com earlier this week: ‘How Law Firms Are Still Losing Millions, Even After Hiring Pricing Specialists‘ by Andrew Malocussion.
If you don’t have time to read Andrew Malocussions article, and I suggest you do because it’s actually very interesting, the long and short of it is that the reason why big (read global) law firms are losing millions in revenue (opportunity) is because…
… their pricing teams are too small.
All I have to say is, “seriously”!
Do yourself a favour, go back in time 5 years and work out for yourself whether or not the fact that law firm pricing teams are too small is the real reason they may or may not be losing millions of dollars in revenue.
For my part, this type of thinking doesn’t pass the pub test!
Feel free to reach out to me if you want to talk through any pricing strategy related issues/questions.
If you are wondering what types of Alternative Fees Arrangements (AFAs) in-house General Counsel are asking their private practice suppliers to provide them with – or, to flip the coin, what AFAs private practice lawyers are charging their in-house GCs, then wonder no longer. The latest market report from the Association of Corporate Counsel (ACC) sets this out in a nice clear table:
Some take-aways:
Importantly though, despite talking about implementing AFAs for over two decades, we are still a long way off actually using them in practice.
Again, take a look at my linked article above where I talk to Patrick Johansen’s Continuum of Fee Arrangements™, where Patrick sets out 16 different types of fee arrangements that can be used:
And ask yourself, how many of these are being actively used in this latest report from the ACC?
Notably missing from the list above? Value Based Billing!
Yes, despite what you may read and hear elsewhere, in practice we are long, long way away from understanding and implementing the appropriate (a term I learned from Toby Brown) use of relevant fee arrangement for the task at hand.
In-house or private practice, if you’re struggling to get to grips with this issue, feel free to reach out to me for a chat.
I have read a lot recently about how AI and ChatGPT in particular is going to kill the billable hour. That may well end up happening. What I do suspect though is that it is unlikely to happen soon. And if the billable hour is to be killed off, technology – such as AI and ChatGPT – may well play a part, but it will be the cultural/behavioural change that’s needed that will be the final nail in this coffin.
Don’t believe me?
Here is a quote (of kinds) by Aarash Darroodi, Fender’s General Counsel, at the recent Legal Marketing Association’s annual gathering in Hollywood, Florida:
…the mere fact that he’s being billed by the hour isn’t a problem — but that the billable hour’s implementation can be.
In other words, Darroodi doesn’t mind that his law firm(s) charge him (his company) by the hour, but he does mind if you take him for a fool.
And until this mindset changes, you’re not going to see the death of the billable hour anytime soon.
Darroodi’s comments on the RFP process – should clients do an “open day” before tendering?
While Darroodi’s comments on the billable hour were interesting, his comments on the approach law firms should take to the RFP process were even more insightful. To quote from the article:
[Darroodi] described receiving template-based RFP responses from law firms — an approach he called “fundamentally a mistake.”
Instead, he would like to see a law firm respond to an RFP with an offer to come look at the company’s operations in-depth, gaining a better picture of his organization before a proposal is prepared.
“First of all, it shows initiative on your part. It shows the fact that you care,” he said. “And plus, it shows us that you’re going to submit something that’s directly related to our existing organization.”
Now I’m more than sure that not all GCs will take this approach. And before everyone in Australia says this would likely breach procurement protocols (after the RFP has been issued), I know.
But, wouldn’t it be interesting – and just a little more relevant, if clients did an “open day” before they issued the RFP? Particularly in cases where the tender is by invitation only?
In my view it would certainly make sense and would undoubtably result in more directly relevant and related (and probably eminently more readable) tender responses.
If you want to read anymore on either of the issue above, go read ‘Why Curiosity Is Key For Business Development Observations from the general counsel panel at this year’s LMA meeting‘ by Jeremy Barker on the Above The Law website.
Not only is it highly insightful – so “thanks for posting it Jeremy”, but it contains this nugget – again from Darroodi – on his views about client events (and if you are anEvents Manager in a law firm, stop reading now 🤣):
“I don’t want to spend time with my lawyers,” Darroodi said to laughter, comparing the idea to hanging out with his dentist.
Ouch!
In the meantime, if you need help with your pricing or RFP responses, feel free to reach out to me.
Leaving aside the whole issue of whether or nor the billable hour is the best way to charge clients, do you think it is fair to charge different client different rates for the same work?
This article by Jordan Rothman on abovethelaw.com would suggest the answer to that question is – ‘yes’.
And I actually don’t disagree with Jordan’s outcome, but do disagree with his thinking of why.
After all, at least here in Australia, we very rarely have the same panel rate for all legal panels we are appointed to so; despite, or rather, the fact that we will be doing similar work under the various panel appointments.
QED – IMO – it’s fair to charge different clients different rates for the same work we do (and, HINT, it all comes out in the wash when you look at the Average Realised Rate – but I will leave that for another post).
But, and here is the critical difference I have with Jordan’s post, different clients will equate a different value to the work being done by you – and so it is more than fair to charge one client more or less than another client perceived on the value of the service they are getting.
For example, and I accept this is somewhat crude, somebody who has never been divorced before and whom your firm ‘looks after’ in a very emotional period of their life is way more likely to value the service your firm provides than someone going through their fifth divorce – so charge them more!
If you want to have a chat about how you can maximise your value opportunities, feel free to reach out.
“As of April 03, 2023, the subscription fee for Microsoft 365 Family will change from AUD 129 to AUD 139 to address changing market conditions.”
Microsoft email notification 19 March 2023
Okay, not a huge increase. But:
Other than to say: “if you don’t like this increase, here is a link to unsubscribe”, absolutely nothing.
My take:
TIP
If, like me, you got this email can I suggest you file this away as an example of how NOT to communicate a price increase to your clients/customers.
And if you need help talking through how you might be able to do a much better job than Microsoft have in communicating price increases to your loyal clients, feel free to reach out:
Photo credit: Ross Findon on Unsplash
Not exactly sure where I came across this pricing menu by a translation service provider in Malaysia – Lexup – so apologies if I am not giving you the credit you deserve because this really grabbed my attention.
A translation service focussed on the legal profession that not only charges by the minute (let alone 6 minute units), but whose rates vary depending on how urgent your need is.
Alternatively, if you’re not happy with the hourly billing model, then let’s go old school (Charles Dickens era) and pay by the word. Again though, the quicker you want your work back, the more it will cost you!
Peak-load pricing. I have no idea why law firms have not adopted this years ago!
As usual comments are my own – but I’m sure there is someone out there who can tell me the optimum price to time!
If you missed it, the recently published ‘The Legal Spend Landscape for 2022‘ by Apperio sets out the ‘Top 5 Measures Of Value‘ in the eyes of the survey respondents – aka, your clients!
In order, these included:
Interestingly, in the same Report, the Top 3 answers to what the ‘Most Effective Techniques For Controlling Legal Costs‘ were:
And I very much suspect that the last of these – “Centralising all legal spend through the legal department” – is going to be a post in the near future, either here or on my other blog.
As usual, comments are my own and I welcome feedback.
Have a great week all.
If you missed it, last week TikTok owner Byte-dance announced that it was moving its employees away from their 996 work week to a new 1075 work week.
For the uninformed, which included me until last week, 9-9-6 required Byte-dance employees to work from 9am to 9pm 6 days a week. A time schedule that would make most lawyers blush. Fortunately for Byte-dance employees, their new – light-on – work schedule is 10-7-5, or from 10am to 7pm 5 days a week.
Clearly a step in the right direction when it comes to employee well-being and mental health.
Anyhow, I comment on this for three reasons:
The announcement had no less than Roy Strom comment on Bloomberg Law that:
Firms are too scared to impose a cap because it would be hard to hire the number of additional lawyers the cap would require. It would also put a huge dent in profits.
And
The billable hour serves as something of a measuring cup ambitious people pour themselves into. The unfortunate truth about Big Law is that it doesn’t have many alternative definitions of success.
If Roy’s comment is right, and it is an unfortunate truth that Big law has little alternative but to measure success by the amount of hours billed then, in my view, that is a really sad reflection of our industry. Because surely other metrics, such as the quality of the work provided and client satisfaction should have equal weighting. Not to mention churn and retention rates.
Have a great week all.
Photo credit to Nathan Dumlao on Unsplash
RWS_01's B[D]log 