Navigating law firm pricing strategies in uncertain times: Nurture client relationships while mitigating firm risk
I recently had an opportunity to participate in the Intapp Pricing Leaders Exchange Forum. Unsurprisingly — given the current state of the global discourse — the discussion quickly turned to COVID-19, and how the virus will impact the pricing function within law firms. As the conversation progressed, we talked about what client pricing approaches might look like on the go-forward, along with what learnings could be gleaned and applied from the global financial crisis in 2008.
Having been one of a handful of legal pricing directors in place during the last major recession, I listened with a degree of historic envy as participants outlined one pertinent approach after another. Where was that insightful collective knowledge 12 years ago when I needed it?
Before taking a deep dive into the detail of what was discussed, I feel compelled to state a fundamental position: Any good pricing practitioner will tell you that the underlying approaches to good pricing should not change in an economic downturn; the same key principles still apply.
We talked about a range of measures, starting with a differentiated pricing approach, which recognizes that not all clients or practice offerings face the same pressure. Participants floated ideas around focusing on the value of your offering, acknowledging that the value of legal services has not disappeared overnight; in fact, it’s quite the opposite for some clients. We discussed the need to adapt pricing approaches to address the needs of individual clients. And finally, we extolled the importance of robust pricing governance processes to manage firm profitability and protect brand perception. We agreed that — although it’s clear that we need a nuanced approach to pricing in the current climate — we must remember to adhere to established pricing fundamentals.
This unprecedented business environment requires a collective course of action. We need guidance on how to navigate those tricky pricing conversations with clients, and we need measures in place to ensure sustainable profitability over the long term. We learned, more than a decade ago, that the pricing ratchet slides down much more easily than it inches up. As a result, we all need to put pricing guardrails in place.
Here are the measures all pricing professionals should all be implementing.
Segment clients: Many of your clients are going to be looking for fee relief. This is why you need to analyze the pricing behaviors of your client base, breaking it down by client importance, sector, and other relevant factors. This will allow you to proactively identify ways to offer assistance through this unprecedented time while mitigating the impact to your firm.
Invest in the relationship: These days, it’s all about the relationship, with the revenue to follow. Building client goodwill puts you in good stead down the road. Help your clients figure out how to reprioritize their legal expenditures and manage their payment schedule, and make it easier for them to engage with you.
Manage discounts: Now is the time to adopt a firm wide policy on client investment, which ideally should be time-bound. This preserves good pricing governance protocols while avoiding well-intentioned ad hoc discounts by individual partners. Adopting fixed-fee terms, retainers, and risk-sharing arrangements can be advantageous for all parties.
Revisit pricing strategy: If you don’t already have them in place, it’s time to implement practice group pricing strategies based on your assessment of upcoming demand while balancing adjustments with current pricing guidelines.
Review rates: Although others might not tinker with rates, I am in full support of a thorough review. Some areas will be busier and more in demand, and firms should be taking full advantage of the available market value.
Focus on cash flow: When accepting a new matter, it’s critically important to assess the terms of the fee, the likelihood of recovery, and overall profitability. Consider the potential for utilizing scarce resources, and carefully evaluate whether or not moving forward is the right thing to do for the firm at this time. And, of course, ensure that timekeepers record hours promptly.
Never before has the need to have seasoned pricing professionals in place been more critical than it is now. Judging by the discussion that took place at the Intapp Pricing Leaders Exchange Forum, it’s clear that we collectively could not be more ready and able to build and secure a strong pricing foundation for the uncertain times ahead.
To learn more about pricing in the pandemic era, join us for upcoming virtual events for operations and finance professionals.