Pricing tips to maintain law firm profits in 2021 and beyond

Pricing tips to maintain law firm profits in 2021 and beyond

20 August 2021 By BigHand

Promoted by BigHand

Law firm leaders need to revisit the familiar trio of People, Process and Technology to future-proof profitability.

Despite the huge pressures placed on law firms in the last 18 months, most have remained flexible and resilient, resulting in strong profitability and growth. In the majority of cases, strong results have been down to firms increasing their focus on client communications, as well as making strict expense cuts. 

Partners everywhere have been committed to checking in with their clients more regularly to make sure work is carefully monitored, proactively managing client concerns long before they hit the billing cycle. This greater engagement has also led to stickier relationships that unearth opportunities that would have stayed uncovered in more certain times. On the expenses front – travel and entertainment dropped to nothing, and real estate overheads were slashed as people learnt how to work effectively from home.   

The question firms are now asking is - how can this be sustained as they begin to return to the “normal” office working environment? As expenses begin to creep up and lawyers gradually spend more time commuting to the office or travelling to meet with clients, profitability will once again rely on firm’s underlying processes and working practices to beat the competition. Law firm leaders need to revisit the familiar trio of People, Process and Technology to future-proof profitability. 

People  

Are you resourcing legal work with profitabiltiy in mind? As Sean Monahan from HBR Consulting said in a recent BigHand whitepaper - resource management can be just as important as LPM and Pricing when it comes to maintaining margins, especially with those teams under increased pressure since the pandemic began. As partners have increased engagement with clients, conversations around pricing have naturally increased too, so ensuring work is completed at the right level and cost to the business will become even more important as costs begin to rise over the coming months. 

Sean says, “Many firms have spent time developing and deploying their profitability metrics in recent years, and the next natural step is to look toward resource management to ensure firms can call in the right resources throughout the lifecycle of a matter.”1

Partners should be able to easily use lawyer time in the best, most cost-effective way to maximise billable hours and profitability.

Process 

Is your firm clear on the profit margins of every legal matter? This was a question we asked in BigHand’s recent survey of 250+ legal finance professionals. The results confirmed that 25% of firms do not track profitability per matter and only 41% confirm they track profit margins on every single matter. An obvious question arises from these figures: how are firms ensuring profitability without some analysis of profit margin at a matter level? Moreover, without this data, how can firms look to make improvements to their pricing strategies?

For firms to maintain profitability as costs begin to rise, it’s essential to retain tight control over profit margins throughout a project. From accurate scoping and pricing, to effective delivery and meeting client expectations, law firms need to implement strong controls over every aspect of their matter management processes. 

Technology 

Are your teams still relying on Excel to create and manage matter budgets? According to our research, an average of 31% of firms confirm that Excel is their tool of choice here. Yet Excel cannot provide lawyers with the trackers and alerts required for real-time insight into progress against budget provided by dedicated legal matter pricing and planning tools. As client pricing conversations have increased, it’s important for firms to have this technology in place to do the heavy lifting and streamline pricing and budgeting processes. As BigHand client Jon Lindrus, Manager of Pricing & Analysis at Foley and Lardner says, “For us, the technology is about providing the partners with an effective way to track and manage their matter budgets, and make more informed decisions as a result. It’s clear, for example, when to use different resources on a matter, or when to notify the client of budget spend.”

Of course, the added visibility gained through a dedicated legal pricing tool will lead to more informed decision making around profitability and ultimately help to increase margins. Chris Oddy, Head of Pricing & Commercial Development, Womble Bond Dickinson confirms, “It’s very obvious that the matters we have tracked with BigHand have had better recoveries than those we have not.”

“We also know that we are making a better margin on some matters that otherwise would not have been economic for us as a business; using the insight from BigHand, we’ve been able to change the delivery model to make these matters viable, while ensuring client satisfaction.”

Law firm pricing has come a long way in the last 10 years, but having the right people, processes and technology in place in this area is no longer a luxury – it is now imperative to maintain profitability post-pandemic. For law firms to maintain profits in the coming months, they must act now to implement the right tools that can deliver accurate pricing up front with real-time and continuous monitoring of budgets throughout a matter lifecycle, and seamless provision of cost transparency to clients, partners and finance teams.

Find out more about BigHand’s dedicated legal pricing technology here: https://www.bighand.com/en-au/our-solutions/pricing-and-profitability/ 

 

1 BigHand White Paper Why Resource Management is Fundamental to Law Firm Diversity, Equity and Inclusion, Hybrid Working and Profitability

 

Pricing tips to maintain law firm profits in 2021 and beyond
Intro image
lawyersweekly logo