“My Precious” - Law Firm Pricing Control

Posted by Richard Burcher on 28th October, 2013 in Opinion and categorised in Pricing Innovation, Pricing Management.

Gollum’s iconic phrase from Lord of The Rings is the theme of this post and pretty much describes the grip that many partners exercise over pricing decisions impacting ‘their’ clients.

This gives rise to a broader question; who should control pricing in the firm - partners, marketing, business development, finance or someone else? Some say marketing because pricing often comes within their remit as one of the four ‘Ps’. Finance can justifiably lay claim as the correlation between pricing and profitability is self-evident.

Partners, who often view clients as theirs and not the firms, make a strong case because this is a relationship business and centralisation of the pricing function will never work. Besides, the relationship partner is closest to the client and is arguably in the best position to know what will ‘work’.

Strategic Controls.

The answer then to the question "who should control pricing in the firm?" is everyone, no one and, it depends. Before deciding who should have pricing control, a more fundamental question needs to be answered and that is, ‘is the pricing decision strategic or tactical?’.

Strategic pricing decisions are those that impact the entire firm. As pricing strategy must be aligned to and reinforce the firms’ broader strategic objectives, aberrant pricing behavior by individuals or practice teams or offices should obviously be avoided at all costs. Therefore, the level of control and relative absence of discretion and autonomy should be such that everyone in the firm has a clear understanding of "this is the way we do pricing around here".

This will involve not just control of discretions around discounts, write-offs and other concessions but also process control such as the development and enforcement of a rigorous methodology to triage RFP, tender and pitch ‘opportunities’ using a decision-making matrix that brings discipline to the task and a more effective cost/benefit analysis. Too many such ‘opportunities’ are pursued at great expense for no other reason than that a particular partner thinks ‘we have to be into this’.

A systematic, scaleable, repeatable and practice area agnostic process-driven approach to pricing work should also be ubiquitous across the firm, regardless of fee earner seniority. "This is the way we do pricing around here".

Tactical Pricing.

Tactical pricing decisions in contrast are those related to pricing and discounting decisions on specific files and matters. Individually, these are generally relatively low impact decisions but collectively they can have a very high impact on profitability across a practice team and the firm as a whole.

As I have written previously, pricing is a skill, not a mindless administrative function. Yet very few partners have had any pricing training either in a theoretical/academic sense or in a practical/execution sense. Little wonder therefore, that results can be inconsistent and indifferent across the firm. In partners’ defence however, it is unreasonable to expect them to excel at this skill when they are inadequately trained and inadequately resourced for the task.

It has always seemed to me that because we are in a relationship business it is essential that the partners with the client relationship or regular client interface should be the ones to engage in the pricing conversation with the client. However, recognising the fact that it is completely unreasonable to expect them to do so without support, partners need a solid team behind them consisting of finance, marketing, business development as well as professional colleagues who share their deep understanding of the particular practice area.

Internal Collaboration Essential.

It is this collaborative, multidisciplinary approach that consistently produces by far the best outcomes; specifically the partner goes into the discussions/negotiations with the client with a very clear view of:

  • The potential profitability/margins on the work and therefore they have a clear understanding of the negotiation parameters within which they can bargain.
  • The ways in which the work can be re-sourced most cost effectively within the firm
  • Where the particular piece of work, the client and the pricing parameters sit at a macro level relative to the firms marketing, business development and strategic objectives.
  • The missed pricing opportunities and the likely objections and pushback from the client that will have emerged from a collegial stress testing and ‘devils advocate’ reality check imposed by a colleague.

At the risk of making this sound like an extract from Sun Tzu’s ‘The Art of War’, the price discussion with a client is often a robust negotiation. It shouldn't be an outright battle, which is hardly codicive to the kind of relationship we would like, but however one characterises it, the 'engagement' is one for which many practitioners are poorly prepared, poorly resourced and poorly supported.

The "6 Ps".

No general would dream of sending their soldiers into combat without proper training, equipment and support. Law firm management and executive are however often guilty of that very failing with their fee earners. And partners need to loosen up on the proprietary,‘it's my precious’ view of the client. A collaborative and prepared approach to pricing will always produce superior results.

The military (if I may continue to stretch the analogy) have an apposite and ‘pithy’ turn of phrase that captures the sentiment - the 6 Ps -  ‘poor preparation produces piss poor performance’.