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Valuating relationships

Valuating relationships

Clients want more from their external legal spend. In response, law firms are ramping up their pricing activities and moving to better articulate value, writes Angela Priestley It's no secret…

Clients want more from their external legal spend. In response, law firms are ramping up their pricing activities and moving to better articulate value, writes Angela Priestley

It's no secret that the pricing strategies of a law firm are its key to driving profit and delivering on the bottom line.

And, when the budgets of legal departments are contracting, pricing becomes the first touch-point that a law firm's clients will examine in a bid to re-evaluate the necessity of their external legal spend.

As such, pricing is the cornerstone of a healthy relationship between clients and their law firms.

At a recent pricing forum, organised by legal consultancy Janders Dean International, a panel of in-house lawyers agreed that accurate estimating on price is essential in maintaining their law firm relationships.

In response, representatives from law firms noted increasing moves by their employers - covering some of the largest law firms in Australia - to more vigorously examine the pricing process, to ensure the accuracy of their estimates and to determine how the value of the legal services they offer can better be articulated to clients. Some law firms have even moved to deploy specialist pricing roles within their law firm support teams, and/or better equip their business development teams to not only work with lawyers on pricing strategies, but to also assist them in better communicating the value their legal services can offer.

But communicating value is not easy, nor is it a natural skill that lawyers retain. Andrew Logan, the national business development manager at DLA Phillips Fox, says his team is constantly striving to deliver on the idea of value, but that they often encounter the difficulty that "value is, by its very nature, not very quantifiable".

As such, value is also difficult to define, making its application a constantly evolving process for law firms to deliver on. "Value comes through all of those things that happen during the engagement but are the things you don't necessarily price," says Logan. "For instance, the rapport that you have with clients and the fit between a certain lawyer and a certain client. When you get two people who work together well and fit together and speak the same language, there is enormous value in that - but it's not necessarily something you charge for, or something that you quantify."

One law firm pricing expert contacted for this report, who does not wish to be named, told Lawyers Weekly that lawyers should not be left alone to manage pricing negotiations. With so many facets involved in determining price and consequently articulating the value that price will offer the client, this pricing expert believes there are too many skills required that a lawyer can't be expected to posses alongside their legal expertise.

"A lot of [lawyers] don't have the perspective of 'how does this fit into what the client is trying to achieve and, therefore, what is the value proposition?'" he says. "If by giving this advice I'm helping a client achieve an outcome ... that is way beyond what they were expecting, then I'm adding enormous value to their business. That then comes into the discussion around, 'what's the compensation?'"

Meanwhile, in seeking more value from their legal spend, clients have come to simply expect certain add-ons to regular legal services - such as secondments, research tools and training. Once upon a time, such value-adding services were seen as a competitive edge, but these days, Logan says clients merely expect such services to be included.

And clients are well aware of the competition in the legal marketplace to attract their attention and, to take advantage of such competition, are devising clever ways to derive more value from their firms.

Addressing the Janders Dean forum last month, Gilbert + Tobin partner Peter Leonard said he has seen clients progressively start to make more demands around the size, shape and composition of the specific team deployed by their law firms to execute a matter. "Getting the hourly rate, the value-adds, they are all just tickets to play," he said. "The hard discussions now are that you have a really smart client, who typically knows your team well ... and has very specific requirements about who they want to work on a matter."

Off this, Leonard believes the best means for a law firm to deliver value to their clients is by providing the right team, in the right blend, to deliver on the service required. "In-house lawyers know that, and once they have worked with lawyers several times they know exactly the size and shape of the team they want for a particular matter."

Later talking to Lawyers Weekly, Logan agreed, noting that his firm now places emphasis on not only examining who the best people, from a technical perspective, are to staff an engagement, but to also examine the best fit in terms of who the client personalities are, what personalities make up the team and how best to accommodate the relationship. "Maybe five to ten years ago, you were getting clients who, to a large degree, were accepting what was given to them," says Logan. "Now, they take the initiative and say, 'this is what we want', and they expect all the firms to deliver on a proposal that fits that set of guidelines."

But as law firms increasingly come up with bigger and better ways to enhance the value of their client relationship, their competitors will simply catch on, rendering a once competitive edge useless. "Everyone is constantly searching for new ideas, but ultimately, those ideas get adopted by everyone else and you're back to square one."

What's really important, notes Logan and other experts charged withworking on pricing strategies at law firms who were contacted for this report, is the ability to harness a mutual understanding of what value means for both client and law firm. "It's about demonstrating value ... and translating our knowledge into a commercial outcome," says Logan. "So demonstrating some knowledge of their industry and their company, to be able to relate that knowledge to a set of challenges they are facing and being able to ... help ally those fears, reduce those risks, increase their profits - whatever it might be."

And, of course, excellent technical expertise will always win over everything else when it comes to value.

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Valuating relationships
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