The second breakout session that I attended on Thursday morning at the P3 conference was "A Case Study on Profitability through Pricing and Client Value," presented by Redwood. 

The program told us: 

For years the legal profession’s main focus with respect to ‘profit’ has been on driving productivity and revenue. Well before the boom in alternative fees this perception had changed drastically. Now in a new world with heavier client demands, budgeting needs, alternative pricing, and changing structures the true drivers of profitability have come under additional scrutiny."

Attendees of this session will learn about the components and changes within the drivers of profitability. In addition they will engage in a case study using real data under a pseudonym to analyze trends, identify wayward pricing strategy, and hone in on alternative ways to look at a firms’ [sic] profitability." 

The session started by looking at shifts in firm behavior, such as discussions of profitability. Some firms think you shouldn’t include profitability in the discussion because it muddies the water. But without it, they’re doomed to fail.

Firms are still confused about profitability, and they don’t understand what it means. There’s a lack of understanding about what drives business. The panelists talked about the a new set of four P’s:

  • Preserve (the relationship)
  • Provide (value)
  • Protect
  • Profit

Along with shifts in firm behavior, there are also shifts in client behavior. There’s a greater use of AFAs in the legal departments. Who is driving these changes? Tech firms and clients.  But corporate law departments don’t WANT to be change agents – they’d prefer to be brought forward by law firms. 

Per an Altman Weil study, 71.6% of law firms are reactive with their AFAs, as opposed to proactive. We’re in a completely reactive state. There needs to be more upfront planning – 99% of mistakes happen because w’ere not asking the right questions. 

Problems for Law Firms

Because firms still struggle with profitability, there’s a need for experienced business professionals to assist them in the process. 

Culture and compensation have an impact – when it comes to partner compensation, the right behaviors need to be rewarded. Here, "transparency" and "profit" are NOT four letter words. 

The reality is that there are key components to this qualitative portion: 

  1. Revenue by originations
  2. Work attorney revenues
  3. Billable hours
  4. Realization percentage

When it comes to profitability, there are five golden rules, whether you’re using an AFA or not:

  1. Profitability is a management exercise, not an accounting exercise
  2. Client profitability models must have an allocation of partner compensation
  3. Models should be low maintenance, simple as possible, and have buy-in
  4. The first goal of profitability analysis should be to surface actionable information
  5. Profit analysis

Successful Approach to Matter Planning

Every matter could have an alternative arrangement – any type of bespoke work with the right data and arrangement CAN be more profitable.  If properly managed, those arrangements could be more profitable, and you’ve also provided the client with predictability and results. 

Profitability 101 in an AFA world requires estimation, efficiency and project management. The risk model has changed – controlling the drivers that can be controlled has become more important: 

  • Limit risk where you can
  • Learn from previous experience
  • Learn to say no…quickly
  • Accurate forecasting
  • Don’t underestimate the power of collaboration

The key question here is how do you manage AFA profitability and incorporate it in strategic and tactical decision making? There’s a close tie between analytics, budgeting and LPM initiatives. An analysis must be done in conjunction with and outside of the hourly model. 

We finished the session with an interactive case study (a handout which I unfortunately didn’t receive, and don’t have access to). The panelists broke us into three groups to review a real-life scenario and discuss the hurdles that the firm faced, what accounted for those, and how they could have improved things and been more proactive. It was an interesting real world example. 

Tomorrow, we’ll be discussing P3 again, so make sure to tune in! 


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Photo of Lindsay Griffiths Lindsay Griffiths

Lindsay Griffiths is the International Lawyers Network’s Executive Director. She is a dynamic, influential international executive and marketing thought leader with a passion for relationship development and authoring impactful content. Griffiths is a driven, strategic leader who implements creative initiatives to achieve the…

Lindsay Griffiths is the International Lawyers Network’s Executive Director. She is a dynamic, influential international executive and marketing thought leader with a passion for relationship development and authoring impactful content. Griffiths is a driven, strategic leader who implements creative initiatives to achieve the goals of a global professional services network. She manages all major aspects of the Network, including recruitment, member retention, and providing exceptional client service to an international membership base.

In her role as Executive Director, Griffiths manages a mix of international programs, engages a diverse global community, and develops an international membership base. She leads the development and successful implementation of major organizational initiatives, manages interpersonal relationships, and possesses executive presence with audiences of internal and external stakeholders. Griffiths excels at project management, organization, and planning, writes and speaks with influence and authority, and works independently while demonstrating flexibility in thinking, especially in challenging situations. She also adapts to diverse and dynamic environments with constant assessment and recalibration.

JD Supra Readers Choice Top Author 2019

In 2021, the ILN was honored as Global Law Firm Network of the Year by The Lawyer European Awards, and in 2016, 2017, and 2022, they were shortlisted as Global Law Firm Network of the Year. Since 2011, the Network has been listed as a Chambers & Partners Leading Law Firm Network, recently increasing this ranking to be included in the top two percent of law firm networks globally, as well as adding two regional rankings. She was awarded “Thought Leader of the Year” by the Legal Marketing Association’s New York chapter in 2014 for her substantive contributions to the industry and was included in Clio’s list of “34 People in Legal You Should Follow on Twitter.” She was also chosen for the American Bar Association Journal’s inaugural Web 100‘s Best Law Blogs, where judge Ivy Grey said “This blog is outstanding, thoughtful, and useful.” Ms. Griffiths was chosen as a Top Author by JD Supra in their 2019 Readers’ Choice Awards, for the level of engagement and visibility she attained with readers on the topic of marketing & business development. She has been the author of Zen & the Art of Legal Networking since February 2009.