The economic downturn has created increased pricing pressure within legal services. We’ve written previously about the growing importance of alternative fee arrangements in a law firm’s pricing tool kit, and two weeks ago, guest author Mike Lowe discussed how successfully employing alternative pricing strategies requires major changes in the way law firms estimate and price matters. These factors add to the complexity of managing a firm’s pricing process and strategy, as firms are now faced with a new reality of finding sustainable ways to continue to grow their businesses in a profitable manner in a buyer’s market.
During the course of 2011, it also became clear that some firms were adapting better than others in terms of traditional rates and collections. To provide some insight into the policies, practices and strategies that may be having a positive impact on pricing, the Hildebrandt Institute and Peer Monitor surveyed firm-wide and practice group leaders from almost 200 medium and large law firms* in the fourth quarter of 2011.
First, the good news: the majority of respondents indicated that they were ‘satisfied’ with their firm’s overall approach to pricing. However, fixed fee arrangements were viewed as the least positive aspect of a firm’s pricing policy, both in terms of a firm’s process for putting together these arrangements, and more particularly, the profitability of fixed pricing models, indicating that there is room for improvements with respect to fixed fees.
Approximately one-half of the firm-wide leader respondents indicated the use of centralized pricing committees charged with setting overall pricing strategy and/or approving pricing agreements. Interestingly, respondents from firms utilizing centralized committees were 20% more likely to be satisfied with their pricing strategy and 12% more likely to feel that rates had increased in their firm over the past two years.
A similar trend was seen in alternative fee arrangement settings – as individual partner discretion over the setting of hourly rate discounts or fixed fee arrangements decreased (and concurrently, central pricing committee involvement increased), the more satisfied firm-wide leaders were with their firm’s overall pricing strategy and processes:
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This survey provides some evidence that greater discipline in the form of centralized management of billing rates and oversight of hourly rate discounts and fixed fee arrangements, rather than leaving it to individual partners, can deliver a positive impact on pricing. This can be in the form of improving satisfaction levels with the process internally, and potentially increase the likelihood of achieving higher rates.
For further discussion on how market and rate analytics can help drive successful pricing strategies, or to learn more about Peer Monitor, contact email@example.com.
Posted by Tricia Pelton
* The average firm size was 346 lawyers, with a median size of 180 lawyers