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16 de Noviembre de 2009

Alternative Pricing: A Lasting Change in How Clients Buy Legal Services

Legal services pricing is the hottest topic in law firms today. Many companies are experiencing significant cost pressures and legal services, which for years have been excluded from corporate scrutiny, are now expected to find efficiencies and cost savings. Moreover, the conversation has gone beyond simply pricing to actually delivering services on a different, and more cost effective, basis. Some lawyers, remembering the host of articles over the last 25 years calling for “alternative pricing” and predicting the death of the billable hour, question whether law firms will ever bill significant amounts of work on a non-hourly basis. Others see pricing and service delivery as a way to partner with key clients and enhance their market position.


To better understand this issue and to ensure your firm does not lose opportunities, it is important to look at the factors driving these changes from the clients' point of view: 

  • Perceived Value - Clients have long believed that the value of legal services often falls short of the fees paid for those services, and that in many cases the gap may be widening. 
  • Alignment of Interests - Clients also believe that hourly-based pricing incentivizes inefficiencies (i.e., the longer a task takes the more the client pays). They would prefer pricing models that encourage efficiency and cost effectiveness in the delivery of legal services. 
  • Lack of Predictability - Most clients' companies buy a majority of their goods and services at a fixed fee or contracted price. Most other professional service firms bill by the project, rather than hourly. Predictability of costs is critical to successful financial management, and clients want the same levels of predictability from their law firms that they get from other service providers. 
  • Overall Cost - Legal expenditure surveys indicate that the cost of legal services has risen more rapidly in the last 10 years than almost any other cost of doing business at client companies. At the same time, at least prior to the current recession, clients watched reported associate and partner compensation levels skyrocket and assumed that soaring law firm profits were at least in part a result of overcharging for the value of the legal services delivered.

Because of these concerns, almost every Request for Proposal requests alternative pricing options. Yet, this is not a new phenomenon. A significant number of companies have been implementing alternative fee arrangements for the last decade.

Will hourly pricing disappear? We do not believe so. We do, however, believe that an increasing share of law firm work will be priced and billed on a non-hourly basis and that law firms must develop strategies, systems and processes to meet their clients' needs, demands and expectations in a way that enables the firm to maintain appropriate levels of profitability for the partners.

What Can Hildebrandt Do To Help You?

There are four main areas your firm must address to implement effective alternative pricing approaches. These are Tools, Training, Resources (pricing personnel, project managers, practice management professionals, and researchers) and Management. A recent Virtual Seminar by the Hildebrandt Institute covered each of these topics.

Hildebrandt consultants assist firms in understanding and implementing the right steps in each of these areas. In particular, we can help with the following:

Pricing Strategy 

  • Conducting a pricing strategy audit that helps you improve how your firm sets pricing, how you manage the process from intake to managing client expectations and tailoring specific approaches to major clients or niche practices. 
  • Training your practice group leaders in what works and does not in pricing strategy. 
  • Helping your firm develop creative or unique pricing solutions that fit each area of your practice.

Pricing Implementation 

  • Guiding firm management, a pricing task force, your practice group leaders or others in implementing new pricing models. We can help you avoid the costly mistakes other firms have made. 
  • Advising your firm on the tools, approaches and pitfalls in new pricing arrangements. 
  • Identifying staff support needed to support new pricing models, including pricing experts and project managers.

Service Delivery Improvements 

  • Helping your lawyers or other professionals analyze your service delivery and work processes to improve the efficiency of legal service delivery. 
  • Evaluating staffing models and internal process-related activities (such as billing practices) to align firm infrastructure to support pricing models. 
  • Conducting legal process audits to identify areas to streamline through technology, different staffing, outsourcing or other approaches.

Why Choose Hildebrandt?

Hildebrandt consultants have assisted law firms in the development and implementation of pricing strategies that have resulted in over $1.8 billion worth of non-hourly engagements in just the last year alone. No other consultants to the legal profession have comparable experience across the breadth of practice areas, geographies and client industries. Our consultants are experts in the key areas needed to successfully implement a new pricing approach in your firm - profitability analysis, work process improvement, pricing strategy, practice group management and all aspects of client relationship and client expectations management.

Pressure on legal fees will remain high for the foreseeable future, and understanding and implementing effective pricing models and new approaches to reducing the costs of legal services will be critical to continued law firm profitability. Contact us today so we can help your firm capitalize on these trends and changes.

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