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What is the biggest pricing problem law firms are facing today?

This week’s episode of the Impact Pricing podcast (episode 20 – ‘Mastering SaaS Pricing: How to Price and Package Your Service’) sees host Mark Stiving talking with Kyle Poyar, Vice President for Market Strategy at OpenView. By their own admission, Mark and Kyle geek-out over SaaS pricing theory and its KPIs, so this podcast is not for everyone.

What is interesting, however, is the response Kylie gives to a question Mark asks at the 23 minute 37 second mark.

Mark’s question:

What do you see as the biggest pricing problem that subscription companies are having today?

Kylie’s response:

…structurally speaking, companies are not spending enough time on pricing, they don’t take a scientific or rigorous enough approach to optimising their pricing and testing it and collecting data on it. And we have gotten smart about just about everything in technology and if you look at the level of sophistication of the operations of a technology company it’s like just so different from where we were a few years ago. But pricing hasn’t really changed and I’ve just started to hear of companies that are trying to bring on pricing talent and make their first dedicated pricing hire and have that happen earlier in their lifecycle; but then those companies are having trouble figuring out what’s the right profile to hire for, who is going to do a good job in this role, and then finding that talent and so I think like, structurally, their biggest challenge is just lack of great pricing skills…

In my opinion, that sums up pretty well the pricing problem that we have in law firms:- we’re in such a rush to show everyone how serious we are about the pricing issue/problem facing the industry (as in, alternatives to the billable hour, project management, process improvement etc), that we have hired Heads of Pricing by the boat loads, but a niggling issue remains – industry report after industry report that has sought feedback from clients indicates (some might even say, shows) that we haven’t gotten all that much more sophisticated or even better about how we price. If that’s the case, we have to ask: is there just a lack of great pricing skills in the industry?

As always, interested in your thoughts/views/feedback.

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NB: please ignore all comments Kylie makes about volume discounts prior to his comments above, as regular readers will know I don’t hold with those views!

The big squeeze is coming: Why it’s important to know if your practice is bespoke or precedent?

Hall Wang penned an interesting post on the Tom Spencer blog over the weekend that looked at two of the different types of consulting – Bespoke and Precedent (Bespoke and Precedent Driven – Understanding the Two Different Approaches to Consulting).

Wang explains the difference between the two as being:

Bespoke: This approach is like making a custom-tailored outfit whereby the focus is on what is unique about a client’s situation and then crafting a customized solution for the client. The mindset in this approach is to think about what might be possible to best fit the client’s needs.

Precedent driven: This approach is similar to the way you bake a cake using a cookbook; following the recipe, but making adjustments as time and available ingredients necessitate. The mindset is to find proven precedents and use them as a guide to provide reliable client recommendations.”

I like Wang’s terminology. I particularly like Wang’s use of ‘precedent driven‘ – an alternative to the stale and often misused ‘commoditised‘. It’s smart language, but I think it’s really important that lawyers and their support team understand the difference and workout which of the two their practice sits in.

So why is this even important?

Here’s the reason:- because if you operate a predominantly ‘precedent-based practice’, then you’re going to be feeling the forthcoming ‘big squeeze’ way more than is likely to be the case than if you run a bespoke practice.

What ‘big squeeze?’; my practice is already seeing an uptick in legal work you may be asking – see the latest Altman Weil ‘Law Firms in Transition 2019: Change Efforts Stalled in 2018 as Business Boomed‘ report for why this may be the case.

Well, as I recently blogged The State of Australian Corporate Law Departments Report 2019 has stated that “45% of Australian GCs are forecasting a decrease in their 2019 legal spend” – so ask yourself:- “Where is this massive savings going to come from?” Add to this the recent Thomson Reuters ‘Alternative Legal Services Provider Report‘ (February 2019) stat that

In just two years, revenues for alternative legal services providers have grown from $8.4 billion in 2015 to about $10.7 billion in 2017. This represents a compound annual growth rate of 12.9% over that period.

and it doesn’t take Einstein to tell you that a big (or bigger) squeeze is coming and that the middle – precedent-driven – market (where the majority of the market players sit) is going to be the epicentre of that big squeeze.

But knowing and understanding this is very important. It helps take you – as lawyers, business developers or leaders – a long way to understanding that in reality very few people want or need bespoke legal services; but what the really really really don’t want is a precedent legal service dressed up with a bespoke ‘full service’ price.

As always though, interested in your thoughts/views/feedback.

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Leverage and the 10-20-30-40 Rule

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Today’s Australian Financial Review Legal Affairs section has an interested article – ‘Junior lawyers bring in the money‘ – reporting what we all already essentially know: that law firms make their money from their junior lawyers.

What spiked my interest in the article was despite reporting the fact that “the conventional profit-driven pyramid model is still the dominant method adopted by most of Australia’s top-tier law firms” the percentages where the work is done has changed over time.

Early in my career we followed what was known as the 10-20-30-40 Rule, whereby [roughly]:

  • 10% of a matter’s work was done at partner level,
  • 20% of a matter’s work was done at senior associate level (there was no special counsel level in those days, but they would be included today),
  • 30% of a matter’s work was done at associate and senior lawyer level (in times when there was a difference between an ‘associate’ and ‘lawyer’), and
  • 40% of a matter’s work was done by the junior lawyers / trainees / graduates / paralegals (i.e., everyone else).

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