The first breakout session that I attended at P3 was "Value-Based Pricing, Legal Project Management and the New Value Proposition." The session was presented by Doug Woods (Strategic Pricing Manager Ogletree, @dougwoodsCPA), Jim McGrew (Chief Marketing Officer, Ogletree), Ashley Tenney (Business Development Manager – Corporate Department, McKenna Long, @latenney), and Crissy Wolfe (Attorney, McKenna Long).
LMA gave us the key takeaways right in the program, so I’ll list those upfront before we get into the full recap!
- What are the common "value drivers" of clients, and how can legal marketers help attorneys have a deeper conversation about what is valued by the client?
- Which pricing arrangements are most (and least) appropriate for various client value drivers?
- How do legal marketers market, and assist in developing, pricing arrangements and project management?
- How do pricing and LPM complement each other and what role should legal marketers play?
Pricing: The Life Cycle
We started by going through the life-cycle of a matter through the eyes of the pricing department. The first step is to "set the price" – the market sets the price, and we see if we can deliver.
The next step is to "get the price" – that’s our value proposition and negotiation. This is the step where legal marketers can be most helpful. Then, "manage the price" – this is our ability to manage and our delivery approach. And finally, "review the price," which is the opportunity to improve our service and/or our margin.
The key here is to be proactive in pricing, not just reactive – why? Because competitors are definitely talking to your clients about AFAs, so you should be too. Pricing is really about customer service.
Client Value Drivers
An Altman Weil Global Chief Legal Officer survey found that there are some common client "value drivers." These were in answer to the question, "Excluding ‘bet the company’ matters, if you could select only one of the following outside counsel pricing scenarios, which would you want most?"
- Transparent pricing: 36.4%
- Guaranteed pricing: 33.7%
- Value-based pricing: 20.3%
- Lowest pricing: 9.6%
What these tell us is that it’s important to talk to the client about what they’re trying to achieve with an alternative fee arrangement. That will determine what strategy is most appropriate. Sometimes, a client needs to come back with an actual number, because they need to cut a budget or come in under a certain amount. But that’s not the most common scenario. Most commonly is the need for cost control – and that’s one that firms can do a lot with.
Another driver for clients is the idea of "skin in the game," which is results-based.
An audience member asked whether efficiency wasn’t included as a driver because it is built in to all of the others, and the panelists said yes – client expect their lawyers to be efficient these days. They’re also expecting law firms to run their businesses like corporations do.
All of this change takes time, as we know. But it is happening – a few years ago, attorneys might say that they couldn’t possibly do an AFA, while now, it’s more common.
The panelists moved on to discuss the different kinds of AFAs. They noted that there are thousands, but identified the most common ones:
- Flat/fixed fee
- Portfolio flat fee
Other common AFAs
- Blended rates
- "Retainer" for advice/counsel
- Flat/fixed fee with stages
- Capped fees
One of the panelists noted that with blended rates, there is often a concern over how the firm will staff matters. Predictability of pricing is a client driver. They want to know that you can predict, and stay within, a budget. It’s our job to help clients understand what something will cost, and if you go over budget, why that happened.
Legal Process Management
Clients are also increasingly looking at process management with selecting a law firm. In order to make pricing strategies successful for the client AND the firm, you need strong project management as well (remember my key points that came out of P3?). A big part of legal project management is "defining the scope" and budgeting is a HUGE part of that.
An audience member asked who from the firm is responsible for communicating any changes in scope to the client, and the panelists agreed that it is the attorney.
Not my Circus, Not my Monkeys?
The panelists also addressed the idea of where the responsibilities for understanding the pricing structures and project scope lie, and the answer is that whether or not it’s under your purview, you need to understand the whole process to be effective. For example, as a marketing professional, if you’re going to write RFPs, you should understand pricing and legal process management to be competitive.
To me, this comes down to good client service – as marketing professionals, our clients are the lawyers at our firms. So to understand their needs and what keeps them up at night, we have to be able to speak intelligently about the things that matter, whether or not they are things we’re directly responsible for. That includes pricing and process management.
Always Follow Up
One of the panelists noted that their firm sends out a five-question survey after each matter to the clients, and this includes a question about pricing. Surveys can also help you to identify trends, and which attorneys are doing the best. These "after-action" reviews also help to keep it fresh with clients. You don’t always get feedback, and you need to know what they aren’t telling you.
Attorneys may argue that no feedback means that they’re a longstanding client with no issues. But sometimes, it actually means something is wrong. An audience member asked how this feedback is sanitized for the lawyers, and in this case, the clients can choose to be anonymous, or speak with the firm or practice chair first.
As we know, the best way to institute change at a firm is to start small – use a "pilot program" to introduce reviews. Make it optional to start and then make it mandatory. Find champions to help sell the program as well.
Let’s go Deep, not just Broad
Clients will sometimes offer a pricing or management tactic in their discussions, but rather than just accepting this at face value, attorneys should dig deeper to find out from them what problem they actually want solved. There may be a better solution than they’ve proposed.
Also, it can help to see who clients have worked with before to get an idea of what their legal spend has been.
In terms of legal process management, if you’re going to include this in an RFP, the attorneys involved should fully understand the process and what it means.
The thought that kept running through my head as I listened to all of this is that I don’t believe clients actually care about process management and which type of pricing is used – for the most part, they just want to know that they’re getting good value for money. So if they’re suggesting tactics and asking to see more information on project management, it’s because law firms are not yet doing a good job of communicating how they offer value to the client and that they know how to effectively run a business (not a law firm, but the BUSINESS of a law firm).
What does this mean we need to do better?
- Education: Everyone in the firm should be on the same page as to the types of offerings available and what that means. Each matter/client is different, but the marketing department, pricing team, and attorneys should all know what the clients’ needs are, how the firm is prepared to meet those needs, and what that means both in the pitching process, and in the delivery process (as well as the follow up).
- Partnership: Clients won’t worry about how you’re getting their work done, if you help them to understand how you are providing value to them, that you understand what drives them and what they consider to be a successful result, and that you want a long-term relationship with them, which you illustrate by working with them carefully and seriously on all of their concerns (both pricing AND the actual legal issues at hand).
- Communication: This is something else that needs to happen at all levels – within the firm, among all departments/people, and between the firm and the clients (most importantly). Clients needs to be told how the firm is meeting THEIR needs, both financially and otherwise, and they need to be kept up-to-date on any changes in scope, and the ramifications of that.
The idea of transforming the "profession" of law into a "business" is a scary one for many people, and something that some still resist against. But with careful consideration, it’s not going to just produce happy clients (who see firm interests align with theirs, and ultimately lower costs), but it will also increase the firm’s bottom line.
It was another thought-provoking session at LMA’s P3 conference! Leave your thoughts below, and make sure to tune in next week for more session recaps!