Iconoclasts Discover More Profitable Law Firms Approach
Research conducted by the Legal Iconoclasts EXPO finds the more profitable firms have a different approach to pricing:
- Only 48% of Law firms expect profitability to increase by at least 5% over 3 years
- 7 out of 10 firms say their fee earners lack confidence in negotiating fees
- 2 in 5 firms do not know what proportion of their clients are profitable
- Value-based pricing is used twice as much by firms expecting a 10%+ profit increase
The inaugural and oversubscribed Legal Iconoclasts EXPO event which took place in September, brought together hundreds of legal professionals and firms from all over the world to debate pricing – specifically, the argument to scrap the billable hour and move to a value-based pricing system.
As part of the event, a research study – Pricing Approaches and Firm Profitability - was conducted in conjunction with a market research company, The Thriving Company to seek greater clarity about the relationship between different pricing approaches and the outcomes achieved. A key focus was profitability, but the study also looked to understand connections between pricing approaches and other issues like work-life balance or the availability of resources.
Shaun Jardine, Founder of Big Yellow Penguin, and Legal Iconoclasts said: “The death of the billable hour has been widely predicted over the last decade, but we wanted to use the EXPO event as a platform to understand and share the reality of the current situation.”
The study revealed some apparent differences in approach between those firms expecting to achieve significantly improved profitability (above 10%) and those who did not. Those expecting the higher increase used a value-based pricing approach twice as much as those expecting lower increases, who favoured the billable hour.
It is striking that just less than half of the participating firms did not expect profitability to improve by more than 5% per annum in the next three years.
Fixed pricing is now well-engrained in firms, standing for 39% of fees, like the use of the billable hour (34%). However, the concept of ‘value pricing’ - explicitly setting fees based on an understanding of the value to the individual client - seems to be becoming more recognised as an option for some firms, making up 14% of fees.
The study delved further into the behaviours and attitudes surrounding pricing. It revealed that the barriers to adopting value-based pricing seem to consist of behaviour, comfort and training issues rather than technology.
44% said ‘we don't know the value of our work to clients’, while 41% said ‘we don't have the skills sets’ and 32% said ‘Partners are uncomfortable with it’.
Most firms (53%) don’t have a consistently applied strategy, almost half (45%) do not have a structured training programme covering either pricing or business development, and 7 out of 10 firms say their fee earners lack confidence in negotiating fees.
Robin Dicks, Director at The Thriving Company, explained: “It’s evident that the firms expecting to generate increased profitability had a much more holistic and less ‘time driven’ approach to pricing. They have a more open relationship with clients and understand the value to them, which enables them to think about pricing differently.”
While 62% of the better performers rigorously ask the client for their expectations and agree on clear service standards (69%), this was only the case in 11% and 36% of the other firms. They were also upfront in asking clients what they want to achieve and what success looked like.
Interestingly the better performing firms also empowered their staff to decide not to work for a client they considered as low value. With the war for talent and concerns over staff retention, firms must look to improve employee well-being and job satisfaction in various ways.
Jardine concluded: “There are widespread concerns about the risk of burnout, work-life balance and the lack of staff which is having a detrimental effect on the further growth potential. All these things seem to suggest that better capturing a good return for efforts made - by the firm and its people - would be of profound benefit not only to direct profits but also to indirect profits through increased employee satisfaction.”
Listed as things firms could input to help increase profits were more training in value pricing, training to help improve self-esteem, better use of data and information systems, a consistent price policy, and consistently gaining client feedback.
Follow the link to review the full research study.
The research questionnaire is still open for anyone who would like to contribute to the findings.
About the Iconoclasts
John Chisholm - John Chisholm Consulting, Melbourne
A 3rd generation “recovering” lawyer, previously a partner, managing partner and chief executive of Australian law firms. John established his own consultancy in 2005 to share his expertise and experience with professional firms who look to maximise their performance by adopting better and different business models and mindsets. He now speaks, educates, facilitates, coaches and consults. www.chisconsult.com
Scott Simmons - Legal Balance, Gibraltar
Scott is a toolbox for turning lawyers into rainmakers. After a successful career in law where he faced similar situations to the lawyers of today, he discovered a love of coaching and training that has seen him coaching young professionals on how to build their own careers, as well as more senior executives to become rainmakers. www.legalbalance.co.uk
Shaun Jardine - Big Yellow Penguin Ltd, UK
As a solicitor, commercial director and former law firm CEO of a top 250 law firm, he has a unique insight into what makes law firms tick and how to exploit the good bits and ditch the bad. Shaun founded Big Yellow Penguin (BYP) in 2021 with the aim of encouraging and helping lawyers and law firms to move on from the 20th century and adopt practices, including value pricing, which will make their futures more secure, both financially and operationally, and enjoy practising their craft again. www.bigyellowpenguin.co.uk
Also read top viewed Ai Legal article: The Role of AI in Legal Research.
