As law firm clients increasingly ask for alternatives to the one-size-fits-all pricing model, firms must implement new strategies of progressive pricing and matter management to remain competitive. Covington & Burling’s Natasha Edlow, Director of Pricing Analytics and Project Management, and Brad Williamson, Senior Strategic Pricing Analyst, spoke to the LMA Mid-Atlantic Future Leaders SIG on November 13, 2018 about what strategic pricing is, and what it means for marketing professionals.
How Things Have Changed
The financial crisis, according to Edlow, had a huge impact on the legal industry. Prior to the crisis, law firms focused on hourly billing, and clients were content to pay that. This pay structure, however, does not incentivize speed or efficiency. In the years since the crisis, clients have begun to look at their full spend to determine how to cut costs and add value. This has led to the rise of procurement and legal operations groups to help negotiate rates for cost efficiency, and also to the growing use of RFPs in securing legal work.
Another impact of these changes is that clients have shifted their definition of success in legal matters. Success is no longer measured by how many cases are won; it now also hinges on whether the client has gotten adequate value for their money, and whether the work has been performed efficiently. Alternative fee arrangements have increased, allowing firms and clients to share costs.
In addition, clients have consolidated the number of outside firms they use, driving legal spend to a smaller number of firms.
“At one point in the legal industry, clients were just looking for legal expertise,” Edlow said. Now, however, it “has transitioned to be more about technology, process management, and project management.”
How Strategic Pricing Can Help
Attorneys have an expectation of profitability, according to Williamson, and ultimately want to improve the bottom line. The pricing department needs to understand the value of certain services to clients in order to set appropriate fees that also meet the attorneys’ expectations. Some services are price-sensitive while others are not.
After determining the price of a particular legal service, project management comes into play. Project management professionals are often part of the strategic pricing team. More and more RFPs ask firms to describe their project management capabilities, including technologies.
The pricing department drives the use of alternative fee arrangements for clients. Since every client’s needs are different, creativity is key. Pricing professionals try to develop arrangements in which the attorneys are rewarded for efficiency and good outcomes. They’ll know they’re successful if they make the matter more profitable for the firm and make the client happy.
Some of the tasks a pricing department may undertake include client rate negotiation, alternative fee proposals, contributing to RFPs, setting annual timekeeper rates, matter budgeting, and competitive intelligence. All of these are in service of increasing profitability.
How Pricing and Marketing Can Work Together
“The biggest benefit for us from partnering with business development and marketing is connecting the dots on what we all know,” Edlow said. “All the knowledge of marketing is really helpful for obtaining a better pricing perspective.” She added that working with Marketing and BD improves the ability to track the correlation between relationships and profitability over time.
Marketing can also help pricing by providing a list of the core team on a matter to help accurately price it, and by offering insights into why the firm is trying to win the work on a particular matter.
The pricing department often helps with RFPs, and, by building a consolidated repository of proposal language, can increase the firm's efficiency in responding. Since clients often already know that your law firm is a good one, including strategic pricing and legal project management language in RFPs can help differentiate your firm.
Pricing professionals can produce whitespace reports, showing which practice areas are doing a lot of work for a particular client and where there are opportunities to serve that client in additional areas. They can also help track win/loss rates on proposals and show the profitability on the work that was won.
“We need marketing’s help to sell our services,” Williamson said. And since clients increasingly expect more from firms, including strategic pricing and legal project management, it is worth our time as legal marketers to help them.
By Rachel Patterson, Digital Marketing Technology Coordinator, Crowell & Moring LLP, for the Fourth Quarter 2018 LMA Mid-Atlantic Region Newsletter