pricing

#ICYMI – Weekly Digest Issue 278

This week’s Digest has been sent out to subscribers. Some of my highlight’s from the week were:

There has been so much great content this week – check it all out here.

If you don’t already, you can subscribe here.

Have a great weekend all!

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Charging like a wounded bull: 10 things to consider

I came across the phrase “The Marquis de Sade approach to billing clients: ‘Bill them till they scream’” in Ori Wiener’s ‘High Impact Fee Negotiation and Management for Professionals: How to Get, Set, and Keep the Fees You’re Worth’ (a book a highly recommend). It made me laugh, and got me to thinking:

‘What would be some of the things I would want to be looking out for in a law firm’s invoice?

So here’s a quick list of my 10 things, but feel free to add your own 🤪 :-

Being charged [for]:

  • Expenses/disbursement – especially if they are unaccounted for (and particularly on fixed fee matters)
  • Travel time – especially if your lawyer is in the same town/city as you
  • ‘Reading in’ time – especially when a new lawyer joins the team because one of the original team members has resigned or left the team
  • Team meetings to discuss your case/matter
  • Multiple lawyers attending the same meeting – especially if they have different time eateries
  • ‘Out of scope’ work without a corresponding change order
  • Block billing of numerous tasks without explanation
  • Promotions – charge-out rates being increased for lawyers on your case because they have gain an additional year of post-qualified experience without adding any additional value
  • ‘Bill padding’/‘Rounding up’ – when your lawyer rounds their time up to the next billable unit
  • ‘Stickiness’ – where senior lawyers are doing work on your file that could be easily have been done by more junior lawyers, but they do it because they need to meet their internal billable targets.have different time.

As I say, feel free to add some of your own in the comments.

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Do you know the 5 Cs of Value?

My friend John Chisholm hit the big time last week, he made the front-cover of Issue No.5 2021 of Legal Business World. All joking aside, John’s article ‘Who subscribes to your law firm?‘ (starts on page 8) is a really good read.

One of the gems I took away from John’s article is what he calls: ‘The 5Cs of Value’, which are (in his words):

  • Comprehend value to clients.
  • Create value for clients.
  • Communicate the value you create.
  • Convince clients they must pay for value.
  • Capture value with strategic pricing based on value, not costs and effort.

These are really good cornerstones to have, even if you don’t subscribe to John’s views of value-based pricing (did you see what an did there 🤪).

In any event, if you are new to the concepts of subscription and value based pricing, read the article because you’ll get a lot out of it.

And if you want to know more about the important topic of value based pricing in law firms, call him – but make sure to extract as much value as you can from him!

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A lesson law firms can learn from Apple’s approach to discounting

What’s your law firm’s approach to discounting?

As far as I’m aware, Apple has never allowed retailers to discount (or have any other say in) its products pricing.

Ever.

As far as I have understood it, Apple’s rational for this because it has always insisted that it – and it alone – has complete control over its pricing.

Why is this important?

In short, because while you will see retailers heavily discounting every other computer software and hardware manufacturers’ products during this year’s EOFY (lockdown) sales, no such offer is made on Apple products.

You don’t see red ink on Apple product price tags.

Ever.

So what can law firms learn from this approach?

  1. Always understand the value you provide to your clients
  2. Never underestimate your worth
  3. Always retain control over your pricing

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Photo credit to Tamanna Rumee on Unsplash

Two graphs chart the rapid ascent of the Legal Operations role

There’s a saying that overnight successes take 20 years to happen. I generally agree with that; it is rare indeed to come across a true overnight success. With the incredible ascent of the Legal Operations role within the legal ecosystem over the past five years, I am, however, willing to make an exception to this saying.

Background

CLOC – the Corporate Legal Operations Consortium – was co-founded by Mary O’Carroll and Betsi Roach in 2016. From my background reading I understand Mary and Betsi started CLOC as quasi book club membership group for quirky people with a legal operations title or elements of legal operation within their role.

Within a very short period of time, CLOC had set parameters around what they called the ‘Core 12’ skill-sets/roles of a Legal Operations professional. These include:

  1. Business Intelligence
  2. Financial Management
  3. Firm & Vendor Management
  4. Information Governance
  5. Knowledge Management
  6. Organization Optimization & Health
  7. Practice Operations
  8. Project/Program Management
  9. Service Delivery Models
  10. Strategic Planning
  11. Technology
  12. Training & Development

So far, so good. Nothing too exciting about this.

Legal Operations: Where are we today?

‘Fast’ forward (if you can) six years and CLOC and the role of Legal Operations has a massive global footprint, as evidenced by the release of two reports in that past month that clearly highlight the rapid ascent of this role within in-house legal teams.

The ACC Graph

The first was the ‘2020 Legal Operations Maturity Benchmarking Report‘, published by the Association of Corporate Counsel (ACC) in partnership with Wolters Kluwer Legal & Regulatory.

This Report contains the following telling graph – the massive increase in the percentage of [legal] departments with at least one legal operations professional.

Take that graph in for a second.

Now let’s give it some context.

In 2020, just before COVID, when discussing CLOC and its role in ‘Episode 27: Legal Operation is it the new legal business game changer‘ of The Legalpreneurs Sandbox, the panel of presenters at the Centre for Legal Innovation (lead by the wonderful Terri Mottershead), took the best past of an hour explaining who CLOC where and what the Legal Operations role was.

This is in no way a negative comment on the Centre – far from it. They are a leading edge think-tank of highly knowledgeable people talking an audience that know what is going on at the forefront of legal innovation.

Frankly, they’re a clever bunch.

And yet, even for them, the ascent of this ‘Legal Operations’ role was – not to put too fine a point on it – mind-blowing.

The Gartner Graph

So we come to the second graph, which comes from a Gartner report that I read earlier today.

Again, this graph blows my mind. But, in this case, so far as I am concerned, the mind-blowing detail isn’t in the astronomical rise of Legal Operations role (which I think relies heavily on the ACC graph above), as it is in the number of so-called ‘non-lawyers’ who are doing this role.

If the growth in that yellow box doesn’t have you shaking your head, go back and take another look at the skill in CLOC’s Core 12 above. Then tell yourself that a ‘non-lawyer’ is in charge of those skills.

So what does this mean for law firms going forward?

The honest answer is, I don’t know.

I have yet to to decide exactly where the role of Legal Operations fits. Clearly this is an important role that will have a significant role to play in the day-to-day running of a legal team. But how do the tasks of Firm Vendor Management, Service Delivery Models and Strategic Planning fit with the role Procurement plays?

Truth is, I don’t yet know.

What these charts do show me though is that the role of Legal Operations here is to stay. We best get used to. And we best get used to working with them. So make sure it a discussion topic within your firm. And, I suspect you will actually be seeing this role playing out in your firm – with a ‘non-lawyer’ in charge!

As always, the above represent my own thoughts only and would love to hear yours.

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BLC Question: ‘How does your organization handle COVID-19?’

If you have not been following it, Silvia Hodges Silverstein‘s Buying Legal Council has been running an interesting question since April 2020:

How does your organisation handle COVID-19?

For clarity, ‘organisation’ here is in-house.

Tracking the responses to this question over a six month period (see graph above) has been interesting.

  • Extending payment terms; which I thought would have ballooned, has actually contracted.
  • Ask for (additional) discounts; which I would have thought would be leading the pack, has actually held relatively steady.
  • Bring more work in-house (outside of a blip in June) has held relatively steady. But more on this one in a second.
  • Hire alternative legal providers has actually ballooned, and may go some way to explaining why may believe the alternative legal services providers have been the real winners from COVID-19 – there time has come.
  • Renegotiating terms with law firms – more on this one below.
  • Pushing non-urgent work to a later date. No surprises with this one, makes perfect sense.
  • Cut non-essential costs: this one has shrunk relatively significantly since April. Not sure if that tells us there isn’t much ‘fat’ in in-house teams?
  • Reduce internal head count; is on the increase again and would seem to suggest a conflict with the “bring more work in-house” response above. Alternatively, in-house teams are really busy at the moment, which coupled with the rise in the use of alternative legal providers could well be very true.

Anyhow, the purpose of this post was to remake on the significant rise in clients ‘renegotiating terms with law firms’.

While this BLC reports (from what I could find) doesn’t define how this renegotiation process is happening, my experience has been that since May of 2020 there has been a significant increase in pitch and tender activity. Many clients are looking for significant savings and are looking to lock law firms into those savings for lengthy periods of time.

And I would have to say that I expect this trend to grow, so if you are a private practice lawyer who hasn’t yet locked-in expert pursuit/pitch/pricing expertise, you’re probably in for a rough 2021.

In any event, keep an eye on BLC – seeing where this trend tack us will be interested in the coming months.

As always, the above represent my own thoughts only and would love to hear yours.

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‘Upfront pricing’: when is a ‘fixed fee’ not a ‘fixed fee’?

I recently read, with interest, an article by Emily McNutt in thepointsguy.com about Uber’s new ‘Upfront pricing’ model in the UK (see ‘Know before you go: Uber rolls out fixed pricing in the UK‘).

In short, as McNutt’s title suggests, Uber have introduced an ‘Upfront’ fixed fee pricing model option for its UK customers.

Wonderful news, and encouragingly McNutt writes:

“…with the introduction of upfront pricing, both the rider and the driver will know the exact cost of their trip before they confirm”.

As someone who enjoys knowing what I’m paying for upfront, this is nothing short of brilliant news (even though I don’t live in the UK nor use Uber 🙂 ).

But…

there’s only one small problem…

which is,

more often than not the rider actually doesn’t know upfront what they are paying for.

Why do I say that?

Well, because Uber UK’s ‘Upfront pricing’ offer comes with four [very small but somewhat important] scenarios under which the agreed Upfront price may change.

McNutt’s article sets these out as being:

  • If the rider adds or removes a stop in their journey;
  • If the final destination is more than one mile away from the originally requested destination;
  • If a detour is taken and the trip is further (40% and 0.5 miles further) and slower (20% and two minutes slower) than originally estimated; or
  • If the trip is at least 40% and 10 minutes slower in duration.

Let’s take a closer look at these:

  • If the rider adds or removes a stop in their journey – okay, on first read this one seems fair. But then I re-read this and saw ‘removes a stop‘; and asked myself: ‘How does removing a step make my fare more expensive (unless the change element here is to reduce the fare – which would be fair go!)?’
  • If the final destination is more than one mile away from the originally requested destination-again, seems fair. But it doesn’t say if this final destination is the ‘original’ final destination. If that is the case, why am I paying more for your miscalculation (see below)?
  • If a detour is taken and the trip is further (40% and 0.5 miles further) and slower (20% and two minutes slower) than originally estimated-not sure what a ‘detour’ is, but having been in the UK just before COVID I can tell you we did a lot of detours!

And so we come to bullet-point #4 – If the trip is at least 40% and 10 minutes slower in duration.

Here I have LOADS of issues.

As McNutt writes:

In other words, if you hit traffic and your trip has been extended by a significant amount of time, the fixed cost will likely increase.

Now that sounds a little wrong. A fixed cost that is allowed to increase because of a time-based element.

Taking a step back here, McNutt writes that:

Uber says that it bases the fixed price based on the best-available route between the rider’s pickup and dropoff points. It uses the expected duration and distance of the trip to come up with the exact figure, while taking into account anticipated traffic patterns and known road closures. Costs for tolls and additional surcharges will also be accounted for in the upfront pricing figure. When demand is high, Uber says it’ll account for that with “dynamic pricing” — a new take on surge pricing.

So Uber totally scopes the project, with information the rider likely doesn’t have access to (Google is good, but that good?), but then says: ‘If we got our calculation wrong, we get the right to readjust’.

To my mind this is essentially a ‘get of prison free’ card for Uber, which is fine – but let’s not then say this is Upfront fixed fee pricing, let’s call it out for what it actually is: a cost estimate at best.

And so why this post after so long away?

Well, no prizes for guessing what other (hint ‘professional services’) industry might have this type of fixed fee pricing mentality!!

As always, the above represent my own thoughts only and would love to hear yours.

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If you are going to discount: ‘Discount with dignity’

In Episode 748 (7 July 2020) of HBR’s Ideacast podcast (23.04), Curt Nickisch interviews Rafi Mohammed, founder of the consulting firm ‘Culture of Profit’, on the topic of ‘Pricing Strategies for Uncertain Times‘.

During the course of the conversation Nickisch states that with COVID-19 service/product providers will be under intense pressure from clients/customers to offer discounts, to which Mohammed replies:

Clearly, in the short-run, you have to offer a discount. And what I would be focused on is what I call discounting with dignity in a manner that doesn’t devalue your product in the long run. And so, that’s really important because once you set a low price, it’s very hard to recover when demand eventually does come back.

And so we turn to how this really important concept applies to law firms

Blind Freddy can tell you that clients are under intense pressure to cut costs. I doubt there is a CFO out there who has not phoned (or even Zoomed) his/her GC and told them to cut costs.

And I suspect there are few GCs out there who have not responded by calling, zooming or even emailing the law firms on their legal panel to tell them to reduce rates by X%.

And, having lived through the Asian Financial Crisis of 1997 and the GFC of 2008, I suspect there are few law firms partners who have not passed along this request to their Finance Department with a note to “make it happen“.

But if this sounds familiar, and if a law partner you know would or has done this (*because it is never us*), then you would be missing out on Mohammed’s very powerful ‘discount with dignity‘ concept.

Because, as much a I hate advocating or agreeing to discounts, Mohammed is right:-

If you offer a discount to customers/clients merely because we are going through turbulent (or should I be saying ‘unprecedented’ 🙂 ) times, then what you are really doing is devaluing your service/product in the long term.

Because what you are saying to your customer/client when you unconditionally agree to a discount request of this kind is that “you have been over paying me all this time” – I’m not really worth what you have been paying me.

A Suggested Alternative Approach

Much like scoping in Legal Project Management methodology, when it comes to discounting (and I’m realistic enough to know that there needs to be some consideration of discounting in current times), you need to be considering what you take out of the basket when you offer that discount.

Which is to say it isn’t a ‘like for like’ for less conversation – you don’t get the same for less. If you take 15% off, you take 15% out of the basket. And you look to alternatives to how that can be sourced – either in-house or some other way (including LPOs/ALSPs).

And, if it really does need to be ‘like for like, but for less’ then it needs to come with a risk sharing collar. For example, I will accept 80% of my fees, but if we get past COVID-19 and your share price returns to pre-COVID highs within 6 months of completing this deal, then you agree to pay me 120% of my fees.

And, in the very worst of scenarios, your invoice should include a line item that states the discount being given is a one-off COVID-19 discount (and Mark Stiving, of Impact Pricing, has an interesting thought on this issue).

Regardless of what it is, you do need to do something. You cannot standstill for less. Because we will get past COVID. And in the ‘new world’ (even if that is a world where we merely live with COVID) there will be a ‘new, new normal’. And if you have agreed to discount your rates now without taking anything out of the basket, then what you have actually done is recalibrated your value in the new world.

And you won’t recover from that.

As always, the above just represent my own thoughts and would love to hear your thoughts.

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This week’s photo credit is Chrissie Kremer on Unsplash

When does the law of supply and demand not apply? – when you’re running a law firm of course!

The Law of Supply and Demand
The law of supply and demand is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines what effect the relationship between the availability of a particular product and the desire (or demand) for that product has on its price. Generally, low supply and high demand increase price and vice versa.

Results published in Peer Monitor’s Q2 2020 Report last week suggest that the broader economy has a lot to learn from running a law firm.

Why would I say this?

Well, what would you think would be the logical outcome from:

  • Average demand for legal services decreasing by 5.9%, and
  • Productivity across all fee earners declining by 7.2%?

In normal circumstances you would be given credit for thinking that prices would come down, or at least hold firm. But as we know, running a law firm is anything but normal circumstances because as the Report goes on to state:

  • Average worked rate charged across the market was 5.2% higher than at the same point last year.

That’s worth repeating: Higher! 5.2% Higher!

If you are wondering how that can even be possible, the answer is relatively simple: ‘partners [of law firms] have begun completing a higher proportion of [the] work by volume.

I would be the first to admit that one possible reason why this [partners doing more of the work in a leverage model – see my post here on leverage] can be the case is because the type of work being done by law firms has become far more complex since the onset of COVID-19 and this requires more grey-haired advice with a higher proportion of leverage at partner level. After all, none of us have lived through a pandemic of this nature and so there really isn’t much precedent for young lawyers to go looking for and so partners and senior lawyers are needing to be more hands on when it comes to file time.

But the cynic in me also thinks that’s a likely to be load of rubbish. Law firms (like many in the economy I will add) have been furloughing staff and making staff redundant during the pandemic. On the flip-side, budgeted number of billable hours for individual lawyers do not appear to have been reduced (other than pro-rata to the number of days lawyers may need to be taking off).

And so we find ourselves in this position where individual billable hour targets still need to be met, but overall demand for legal services is falling.

So what happens when this happens?

If we learnt anything from the data of Great Recession it is this:

In times of signifiant economic downturn, holding individuals to individual budgets results in an upstreaming of work.

  • Partners will hoard work in an attempt met their budget first
  • Special Counsel will hoard work in an attempt to met their budget second
  • Senior Associates will hoard work in an attempt to met their budget third.

And if you are outside of the gold, silver or bronze medal positions you’re pretty stuffed!

So what can we do about this?

For those sitting around wondering what can be doe about this, the answer is appears to be pretty clear – do away with individual utlisation and budgetary targets. Even in the best of years these so-called budgets are arbitrary in determining law firm profitability (primarily because they work on an opportunity cost profit basis rather than a real in the bank profit analysis), but more importantly because they create silos – individuals in law firms with personal incentives that outweighs those of the group/society.

And, they sustain bad behaviour in firms – ‘me’ over ‘us’.

But critically, firms that work like this create ‘Motels for Lawyers’ – not law firms.

As always, the above just represent my own thoughts and would love to hear your thoughts.

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Photo credit Alexander Mils on Unsplash

Not every step is an equal step

bruno-nascimento-PHIgYUGQPvU-unsplash

When it first became apparent that COVID-19 was a pandemic – and one that we truly needed to be concerned about here in suburban Sydney, my doctor gave me a call. The call went something like this:

Doctor: “We need to make you ‘COVID ready’ Richard”.

Me: “Okay Doc, what’s COVID and how do we go about making me ‘COVID ready’?”.

We all now know what COVID is, and for a number of reasons – asthma, lack of general fitness and age group – I fell relatively squarely into what my doctor termed: the ‘vulnerable‘ (it sounded a lot less sinister then than it does now – now it’s actually a worrying tag).

His plan for preparing me to be ‘COVID ready’ (or at least better prepared) included walking 10,000 steps a day (and if you are wondering how far that is, it’s roughly 9kms). To help me (actually more importantly my doctor) track my success at achieving this daily task, I downloaded an app onto my iPhone and off I went.

Being the grumpy old man I am however, it didn’t take me long to come to the realisation that not every [walking] step is equal – a step walking up a steep hill takes a lot more effort than a step walking on a flat tarmac road.

But to the app they are the same. The app doesn’t distinguish between the effort of a step, it merely counts the number of steps!

So if you are still reading this – and you’re roughly 200 words in – you’re probably thinking:

“Fine, but what does this have to do with the business of law?”

And so here is my point – without trying to belittle the situation we are in at the moment:

If you are a lawyer and record your time by the billable unit, and have some kind of software to help you track that time, it won’t recognise the time and effort of the task you are undertaking: it will merely record the unit of time.

So much like my walking app records each ‘step’ I take, your billable software will record each [typically] six minute unit of time. It won’t give you any additional credit for the ‘effort’ (read difficulty) you put into that unit.

In fact, quite the contrary.

My walking app – and by extension my doctor monitoring it – gives me more credit for walking 15,000 steps a day on a flat and even surface than it does for walking 8,000 steps a day up a very steep inline that takes me three to four times more effort and for which I will ultimately be penalised by my doctor because I’m still 2,000 steps short of my daily target – despite the fact that overall I’m getting fitter, which is actually the ultimate goal!

So which of the two options do you think I go with?

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Photo credit to Bruno Nascimento on Unsplash