Reputation trumps price say most GCs

Earlier this year Validatum published a blog entitled ‘We’re more expensive than them because we are better than them’.

The blog began with my observation that although there are clearly exceptions, it is well understood by most law firm marketing and BD specialists, if not so much by partners, that for the most part, technical ability is not a differentiator in the eyes of clients. And even if it is a differentiator in a specific situation, claims of superiority tend to be viewed by clients as little more than hyperbole and lacking any kind of proof.

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“We’ll have a chat at the end” – a $20B black hole

We lawyers detest talking about our fees with our clients, yet analysis suggests this is leaving a $20B black hole in the revenue of BigLaw firms.

Richard Burcher’s firm, Validatum, has worked with over 300 law firms in 18 countries and if there is one common denominator he observes, it is a shared perspective that the price conversation is the most unpalatable and stressful aspect of the lawyer/client relationship.

We will do anything we can to avoid it and for many years, until regulation intervened, we could get away without much of a pricing conversation at the outset or at best, a very vague and abstruse one that kept all our options open.

Most Western legal jurisdictions now have regulatory regimes that require a comprehensive level of engagement with clients around cost at the outset of the matter. Consequently, there has been improvement, although rightly or wrongly, many still hold the view that lawyers approach to pricing remains unacceptably opaque.

Notwithstanding the progress that has been made towards price transparency (the numbers) and pricing transparency (the methodology), the profession continues to let itself down in relation to the ongoing pricing conversation. Pricing should never leave the table as a topic but unfortunatel,y the price conversation is often seen as a box to be checked at the outset and not something that needs to be revisited on a regular basis.

So how is it that we have come to make an art form out of procrastination when we know that this abdication of responsibility is the genesis of the sort of dynamics that we are all familiar with…

(a) shock and awe when you get a time print out at the end of the job (“good grief, that got away from us!”),

(b) difficult conversations with clients (“I’m sorry to be the bearer of bad tidings but…”),

(c) difficult conversations internally (“look I know we said we were going to clamp down on this sort of thing but this really is a good client of mine and we need to take a view on the write-off…”)

(d) “Hey, I’ve got a solution. We have £20,000 on the clock over what we told the client so let’s split the difference and knock off £10,000?”

And there you have it. The largest single reason why the default setting for most firms is broad satisfaction with a realisation rate of 85% to 90%.

Let’s look at the implications of this a little further. Obviously, the net write-off across a firm is never wholly attributable to the dynamics referred to above. But let’s say half of it (7.5%) is. The legal market in the UK is worth approximately £26 billion. That means that perhaps £2 billion is squandered in the fashion described.

A $20B black hole – or more!

Apply this same reasoning to the US market which is worth approximately US$260 billion and you’re talking something in the order of US$20 billion going down the gurgler for no good reason.

I’m sure there will be finance directors who take umbrage with some of my figures and assumptions. I certainly don’t pretend to have brought scientific rigour to the exercise but taking a broad brush view, I imagine we can all agree that we are talking a shed load of money.

Why have a difficult conversation now when we can have it later? This approach is delusional. The conversation isn’t going to go away. There is going to be a conversation and it beggars belief that anyone would seriously think that the conversation is going to go markedly better at the end than a timely intervention when, at an intellectual level anyway, most partners know a discussion should occur.

Nonetheless, our inner voice rationalises and justifies a deferral of the conversation with sage insights such as, “things are developing so quickly, there is just no time to deal with it now”, or how about “the client won’t appreciate being forced to have another pricing conversation mid deal. In fact, they’ll think I’m just taking advantage of them.”

And so, comes the punchline – “we’ll have a chat at the end!”. The problem is that even leaving aside for a moment the regulatory imperative to keep the client informed, the public relations and relationship upside of doing so, the fact that we know clients always appreciate an early heads-up on bad news and conversely hate unpleasant surprises, keeping our powder dry until the end isn’t smart from a negotiation perspective.

In short, renegotiating the price after the event with a client who has already had from you everything that they need, is never going to find you in a particularly robust position.

All of which screams the question, Why? We can wrap it up in all manner of packaging and justification but I am sorry to have to report that it is by and large nothing more than unmitigated cowardice.

If we are brutally honest with ourselves and we ask at a time and in a place that we would never share with our colleagues or anyone else why we are not having the conversation now, when we know we need to, the answer is simple and primal. Fear.

Fear of upsetting the client, fear of losing the client, fear that the client will say uncomplimentary things about us, fear that the client will no longer like and respect us, fear of how things will look internally, fear borne of our own lack of confidence and self-belief, fear borne of our belated recognition that we have done a sloppy job of scoping, fear borne of our suspicion that we may just not handle the conversation particularly well.

And so, we look for the line of least resistance. Say nothing when it needs to be said, have the conversation as late as possible and produce whatever financial mea culpa is required to make the problem go away.

As The Donald would say in erudite and eloquent fashion, ‘bad, very bad’.

 Author

Richard BurcherBased out of London, Richard Burcher’s consultancy Validatum ® is described as the foremost architect of legal services pricing practice internationally.

Richard is regarded as the leading niche consultancy of its kind in the world with a sole focus on legal services pricing; which he regards as the most challenging and rapidly evolving aspect of the lawyer/client relationship.

Richard is a major contributor to the chapter on pricing in Remaking Law Firms: Why & How, available from the American Bar Association and Amazon.

This post was first published on the Validatum blog.

 

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When it comes to pricing BigLaw’s services, play off the front foot or perish

When it comes to pricing BigLaw’s services, play off the front foot or perish is contributed by Richard Burcher, the intrepid Kiwi based in London and a world leader in pricing BigLaw’s services. Richard’s post has three core messages.

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The perfect pricing storm: Artificial intelligence and hourly billing

 In his June 19, 2016 post The perfect pricing storm: Artificial intelligence and hourly billing, Richard Burcher writes “Law firms today face increased pressure to do ‘more for less’ resulting in rapidly growing interest in compelling technology-augmented hybrid offerings: focused on process-oriented work, applied at scale, leveraging technology to produce effective solutions that address the GCs evolving role as manager of legal spend and supply chain risk. For many law firms, this means fewer billable hours.

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