Taking control of pricing to improve margins
Are law firms really that different to other businesses?
I suspect that anybody could contact any lawyer in your firm today and ask for a quote. This is completely different to most other industries. If you want to buy something personally you might go online and get a figure that has already been set centrally off a website. If you want to buy something in a shop, then the prices are already disclosed and it is not down to the shop assistant to suggest and then negotiate the price with you.
If someone asks a lawyer if they would like to do a piece of work, it can often become all about winning or losing the work and the price at which the work is won is secondary to the importance of winning the work itself. This can and does lead to work being won at a price that can never be profitable. It is worrying just how many matters are often loss making.
Applying some discipline
It might be difficult to stop people contacting lawyers in your firm for a quote but you can dictate how lawyers will deal with such enquiries. The moment a quote is given to a client, it is likely that a client will try to talk the price down, so it makes sense to at least start with a slightly higher number. This is best achieved by having an initial conversation with a colleague who is on your side and who is likely to give you the confidence to quote a little higher.
A firm could stipulate that if a quote is going to be over a certain monetary figure then the quote would need to go through the Pricing Board first. The Pricing Board is a group of people who are willing to invest some time each day to help other lawyers to quote more. The monetary figure set should be at a level so that the Pricing Board will need to look at about 10 quotes per day.
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The role of the Pricing Board
When the Pricing Board Considers a possible quote they will ask for an overview of the matter and the initial thoughts on pricing from the originating lawyer. The sort of questions that the Pricing Board might then consider in deciding whether the fee quote is appropriate include:
- Has the scope of work been clearly defined?
- Have relevant caveats been identified?
- Has the urgency of the matter been reflected in the quote?
- Has the financial value of the matter been reflected in the quote?
- Have more innovative ways of quoting been properly considered?
- Has the resourcing of the matter been optimised?
Once the Pricing Board has challenged the originating lawyer they should have given some confidence to the lawyer to make the initial quote a little higher. Obviously, firms should also be providing training to lawyers to help them to negotiate in a more skillful and confident manner when the client comes back looking for a discount. If clients do challenge quotes that have come from the Pricing Board then the lawyer who is negotiating can at least say that they are not authorised to discount any more than a small amount without going back to the Pricing Board, which will further help the negotiation.
The need for measurement
It is important to establish whether the Pricing Board is adding real value. This can be done by comparing what happens with a number of quotes where the Pricing Board does nothing and comparing this with a number of quotes where the Pricing Board intervenes. If the Pricing Board is clearly adding value, then the initiative needs to be extended to a wider range of smaller matters.
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