4 Steps Your Law Firm Can Take Now to Increase Market Share
Published March 10, 2016 in Legaltech News; to view the entire publication, click here:
By Ben Weinberger
There’s no scarcity of legal industry reports chorusing the refrain: margins are flat; corporate counsel are increasingly taking more work in house; law firms aren’t responding in kind. Perhaps this was most clearly echoed in the 2016 Report on the State of the Legal Market published by Peer Monitor and Georgetown Law Center for Study of the Legal Profession:
Clients today are more willing than ever before to disaggregate matters […] are more open than ever before to utilizing non-traditional service providers (including non-law firms) to provide a wide range of services previously obtained almost exclusively from law firms. And clients are far more likely today to retain work in-house, bringing their outside counsel in only where needed to supply specialized expertise or to handle matters on a discrete project by project basis.
Law firms have become vendors amongst a field of vendors to their corporate clients. Let’s flip the supposed ‘threat,’ however, into an opportunity: firms can increase market share by intelligently leveraging the new reality.
Rather than passively competing to deliver services at the lowest price—which is not feasible, desirable, nor sustainable–firms will succeed by taking a proactive approach to pricing: by understanding their own internal economics and the economics of the legal supply chain such that they can deliver an optimal mix of resources to the client that is cost effective to the client–and profitable to the firm.
This is the pathway to increased market share; but, how will these firms do it? Here are four proactive steps firms can take now:
1. Stop using Excel to budget matters
First of all, understand that your client wants a budget. Historically, it was a seller’s market and budgets were not necessarily expected. They are now expected. Excel, as simple and effective as it can be at times, is limited—limited, specifically, from analyzing historical data in any meaningful fashion that makes it actionable when creating a matter budget.
Today’s budgets need to incorporate all of the disparate components of which your matter is composed: whether you are going to perform 4 depositions or 20; whether discovery is going to involve 50 gigs of data or 3 terabytes; as well, the resources involved, including forecasting length of time per resource against skill level and billable rate. Within Excel, pricing managers are left to repopulate numerous components and recalculate various elements when what is truly needed is a more comprehensive understanding of historical data derived from multiple systems. This brings us to the next point.
2. Take a data first approach to pricing
Law firms are price takers—so suggested industry expert Ron Friedmann, of Fireman & Co., during a recent keynote. Meaning, the market has already determined the price of a legal service before the firm has had an opportunity to bid. If you need to deliver a piece of work profitably in a price taker environment, you need to understand your resourcing, who is working, how much you are leveraged, and what your margin is.
The only way for a firm to sustain its profitability, then, is to comprehensively understand its costs: all previous matters of a similar type for that client, each of the time keepers and professionals who are involved in the delivery of that matter, and, importantly, how much time has been written-off or written-down previously and what bottom of the bill discounts were applied. This is where firms now must leverage data using true business intelligence, where this information can be presented in an actionable manner.
You may know what the firm realized in previous matters, but you don’t know what was written down or discounted – you don’t know its true cost, and you certainly wouldn’t know your profit. Your firm needs a data first approach – software that does this seamlessly. Excel is a great tool, but, it wasn’t meant to do it and it can’t do it.
3. Embrace the legal supply chain (and manage the flow of value to price)
The legal supply chain extends from LPOs to the in house teams themselves; all are viable resources providing downward pressure on price and whose costs and expertise need to be understood in the price taker economy. Without an understanding of the cost of services delivery within firms, lawyers are left to discount at the end of matters because it is the only tool they have in their arsenal to demonstrate to the client that they received a good deal. In a price taker economy, this is not tenable—but, as the saying goes, if the only tool you have is a hammer, everything looks like a nail.
Clients accept that their outside counsel need to be profitable, but firms need to understand their areas of expertise, where that expertise ties-in at the “right” place in the legal supply chain, and how to place the work most efficiently (in terms of cost and required expertise) inside the firm. Not all work will generate the same profitability and not all work may be profitable inside the firm; further, it requires the correct resource allocation inside the firm to generate appropriate profitability.
4. Deliver and ensure predictability to your clients
The new holy grail of client service is pricing predictability. In house teams are cost centers within their organizations and, as such, their budgets carefully controlled and highly scrutinized. In house counsel is held accountable to the CFO and/or CEO of the organization; or, as with publicly traded companies, are ultimately beholden to quarterly reports to shareholders (and various government regulatory bodies). Outside counsel are an extension of the in house teams.
Pricing is not like birthdays; nobody appreciates the surprise factor. If your firm can budget in a price taker economy, deliver an optimal mix of resources to effectively deliver legal services to the client, monitor the ongoing economic health of that matter to ensure predictably at matter’s end—and do all of this profitably, well, then the only thing left is to rinse and repeat (and gain market share).
About Ben Weinberger
Ben Weinberger is VP of Solutions at Prosperoware; he can be reached at email@example.com.