03 Aug Opportunity Management: Why You Need One System to Manage Both Pricing and Pitches
Opportunity Management: Why You Need One System to Manage Both Pricing and Pitches
2016: Unreliable Demand, Insufficient Insight into Cost
A high percentage of law firm leaders have identified the following market forces as those that significantly alter the traditional flow of work from their firms’ clients.
- Price competition (95%)
- Commoditization of legal work (88%)
- Replacement of human resources by technology (85%)
- Competition from non-traditional service providers (82%)(1)
Sixty-two percent of firm leaders think the erosion of overall demand is a permanent trend.(2) The lack of growth in the legal services market means that law firms must not only compete for each dollar of incremental revenue, but also ensure that each of those dollars is a profitable one. As in other industries, intense price competition will eliminate or severely trim supplier profits.
More legal work continues to shift in-house and, when clients go to market, procurement is increasingly influential in purchasing decisions. As procurement rises, traditional/ long-standing relationships play a smaller role in purchasing decisions, bringing ever diminishing influence to bear on winning new business. According to the latest statistics, in today’s market:
of all legal departments increased in-house staff
decreased outside counsel spend (3)
of routine “commodity” legal services purchases
of so-called “bread-and-butter” work involved
of high-end legal services involved procurement
This increased involvement from procurement has intensified downward pressure on prices, in general, and especially impacted the use of Alternative Fee Arrangements by outside counsel, which jumped to 35.6% of total spending in 2015. (5)
With insufficient insight into cost, client value to price has been habitually delivered via write-downs and writeoffs, negatively impacting profitability. The use of simple discounts – the least strategic approach to pricing – is widespread, comprising a median of 21%-30% of all law firm fees, with as much as 40% of large firms’ revenues coming from discounted fees. (6)
2016: Opportunity Management, Proactive Positioning
Efficiency and pricing are areas that firms can control to meet the changing marketplace and manage challenges and opportunities. In a profession with a deeply entrenched tradition of hourly billing, those firms that find ways to meet clients’ changing value demands through better pricing and efficiency measures are better positioned to compete. (7)
How can law firms develop a disciplined, analytical approach that will ensure the identification and acquisition of profitable, new business?
Opportunity Management: a single system to manage the entire opportunity process, including Pricing and Pitching.
Opportunity Management is the set of processes, analytics, and practices required to successfully pursue and win new business. It starts with targeting a new client, or new matter for an existing client, and proceeds through the sales cycle. Winning new business using an opportunity management process requires law firm partners to develop their skills to understand client requirements and influence client buying decisions.
- Identify new clients and cross-selling opportunities in existing clients
- Understand client business issues
- Qualify the profit potential of new opportunities, position firm to respond to proposal, and meet with potential buyers to build relationships
- Research client opportunities and buyers of legal services
- Prepare competitive analysis, relationship selling in professional services
- Analyze practice experience to distinguish between high value work and low-profit commodity work
- Estimate work required, research analogous experience, propose price and alternative fee arrangements internally to partners pursuing the business
- Propose pricing structures that align with client and firm needs. Use firm’s experience to inform pricing decisions; financial acumen required to build pricing proposals that preserve profit
Responding to RFPs
- Prepare a winning price proposal
- Prepare a winning response to the client’s RFP
- Write winning responses to client RFPs
- Deal with procurement departments that are not close to the business requirements (indirect interaction with recipient of services)
- Present to qualified buying team within a client’s organization
- Confidently deliver a winning sales presentation and close new business
Negotiating Fee Arrangements
- Agree on rates, fee types, and outside counsel guidelines
- Explain and reach an agreement on fee arrangements for a new matter or longterm business relationship
- Review budget models and select pricing scenarios that assure matter profitability
- Prepare to deliver legal services to a new client or for a new matter, prepare systems to manage and report on budget vs. actual spending
- Lead and track the intake process
- Prepare to monitor matter performance and intervene to ensure matter profitability
The people that participate in this process include Partners, the Marketing Team, the Pricing Team, and the combined team assigned to pursue the opportunity. Currently, the systems that facilitate the process include the CRM, proposal writing software, pricing tools that facilitate exploration of pricing options, and research databases required to understand the legal problem and client background.
A decomposition of the New Business Development process demonstrates how these steps unfold. Below is a functional diagram that shows inputs to a process starting at the task box on the left and outputs exiting via the task box on the right.
New Business Development Process Map
Opportunity Management: Lead with Integrated Solutions, Don’t Just Keep Pace with Siloed Technologies
If the strategy is simply to keep up with the pack, it misses the point that most of the pack is itself lagging. A firm can never get ahead by merely aspiring to keep pace with sluggish competitors. Vigorous pursuit of opportunities has always paved the way for competitive success. (8)
It’s a positive trend that the majority (56.8%) of firms with more than 250 lawyers have significantly changed their strategic approach to pricing in 2016.
developing data on cost of services sold
training lawyers to talk with clients about pricing
setting margin goals in firm and practice group plans
identifying each client’s unique pricing preferences
incorporating pricing in all planning efforts
Importantly, maximizing the value of these integrated processes and data flows to ensure new business development performance can only be properly facilitated by comprehensive technology solutions – not simple, individual ‘point’ solutions.
With such high expectations for new, profitable engagements, firms can no longer rely on a set of disparate, siloed technologies to coordinate the opportunity management process. A well-engineered process for acquiring new business requires one integrated system, designed to properly manage opportunities from targeting through onboarding.
Prosperoware’s Umbria platform enables each of the process steps, leveraging internal and external data while simultaneously building a comprehensive knowledge base of the firm’s experience. Over time, this data allows the firm to learn from its experience while continuing to win profitable business. Clients – and law firm partners – can benefit from this beneficial cycle of learning and applying the insights from analysis.
(1) Altman Weil 2016 Law Firms in Transition
(3) ACC 2016 Chief Legal Officer Survey
(4) Buying Legal Council 2016 Procurement Survey
(5) BTI Consulting State of Alternative Fee Arrangements 2016
(6) Altman Weil 2016 Law Firms in Transition
(7) Altman Weil 2016 Law Firms in Transition
(8) Altman Weil 2016 Law Firms in Transition
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