What can law firms do to understand better what their clients want, how can they communicate value to them, manage their expectations and deliver what they’re asking for? What follows focuses on the pricing aspect of the relationship between clients and law firms.
This article was originally published in the Solicitors Journal
I’m old enough to remember a world without PCs, tablets and smartphones. The problem nowadays isn’t accessing information about what buyers of law firms’ services want, it’s filtering what’s out there and sensibly interpreting it. A Google search (other search engines are available) a moment ago of ‘What do clients want from lawyers?’ produced 61,900,000 results in 0.25 seconds. Page 1 of those results included both, for me, the expected and the unexpected, with links to pieces in or by Lexis Nexis, Lawyers Weekly and Law Firm Ambition very much in the former category, alongside academic treatises and articles in niche publications such as Biomass magazine. I might have expected to see the Competition and Markets Authority on there, US-based consultancy Altman Weill, maybe the Legal Services Consumer Panel or the Property Academy. None of them made the first ten pages.
A word of caution then in interpreting what you’ll find out there. The Legal Services Consumer Panel tells us for example that after reputation (78%), price is the next (72%) most important factor for a client choosing a legal services provider. But it depends on (a) who you ask and (b) how you ask the question. As to (a) are they asking experienced buyer of legal services, for example an owner of their own business, or the kind of individual that uses a lawyer three or four times in a lifetime? There’s nothing wrong with the latter, but you won’t learn anything about sophisticated buyers of legal services from them. And is the question open (‘which of these would be important to you in choosing a law firm’, in response to which case a person might tick many or even most of the boxes, giving the kind of results that the Panel obtained), or closed (‘of these four factors, which would be the most important to you in choosing a law firm’), in which case reputation and recommendation would come out far ahead of price – see for example the Altman Weill 2014 report, Law Firms in Transition, where fewer than 10% of regular buyers of legal services said that ‘lowest price’ was the approach to pricing that they wanted from their law firms.
Now in its 10th year with half of all US law firms with 50 or more lawyers participating, the Law Firms in Transition survey by Altman Weill has become a valuable resource for insight on law firm strategy and the opinions of firm leaders. Although the research and the report are US-centric, I have little doubt that if the exercise was replicated in the UK market, the results would be very similar. The report is wide ranging in its remit and worthy of reading from cover to cover but my focus is of course on what is happening in the world of pricing. The report reveals that “adding a pricing director or assigning pricing responsibilities to a current staff member“, is rated one of the top three tactics that has resulted in a “significant improvement in firm performance”. Interestingly, 85% of respondents said that they were proactively initiating conversations about pricing/budgets with clients to better understand what individual clients want. This fundamental shift from an adversarial paradigm to a more constructive and collaborative one must inevitably produce better outcomes for both the client and the firm.
What are we going to do about it?
All lawyers really need to do is pay attention! Clients are telling us what they want in a myriad of ways (in their RFPs, on their feedback forms, in the activities of our competitors, etc) and on a day to day basis. There’s a well-known slide used in many a PowerPoint presentation showing a hole in a wall. The idea is to remind the audience that people don’t buy drills, they buy holes. People don’t want a taxi, they want to get somewhere. Clients don’t want to hire lawyers: they want results, outcomes, peace of mind, communication, empathy and understanding, strategic partnerships and of course expertise. These attributes of course have nothing to do with time in the sense of the billable hour – but that’s another topic altogether!
The real question is of course not what do our client want, but what are we going to do about it? Some of the things we can do include:
- Focus on offering quality of service rather than legal expertise.
- Take time to understand the client’s point of view.
- Be proactive in discussing alternative fee arrangements.
- Develop pricing systems and templates.
- Learn continuously – monitor performance and identify opportunities to improve.
Other practical steps are covered in more detail hereafter.
Price and value
Value is the most important aspect of price, price management and pricing policy. Or, to put it more precisely, the value perceived by the client. The willingness of clients to pay and therefore the price targeted by the firm are always just a reflection of the perceived value or benefits of the advice and service being provided – nothing more and nothing less. I always remind lawyers that the price is what clients pay; value is what they get.
A transaction takes place only if the law firm and the client can agree on a common price. Many law firms are unhappy about the prices they have been able to achieve in recent times. The lowest price offering always seems to come out on top (that is not the reality but it is certainly the perception). The race to the bottom is still on and reminds me of John Ruskin’s famous words: “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.”
As a lawyer, it’s tempting to think that clients are paying for your legal expertise. The more expert you are, the more they will be prepared to pay. But research suggests otherwise. Domestic conveyancing offers a clear example. Clients expect conveyancing to be done right, whichever lawyer they use. Cut-price, fixed-fee conveyancing services have proliferated. Your ability to charge a higher price has to come from the quality of service you offer, and the relationships and reputation this has helped you build.
The value proposition may be missing?
When law firms raise the issue of discounted headline rates, poor realisation and recovery rates and the like, I have three questions; first, what part of the market are you targeting or generally serving? Second, what added value and benefits do you offer that your competitors don’t? And third, do the firm’s pricing policies and strategies reinforce or undermine the first two answers?
In response to the value and benefits differential as perceived by clients, the usual response is silence. However, businesses and private clients are willing to pay full or even premium prices in return for higher value.
Whatever legal services you provide, the challenge is to understand what clients value – and how you can communicate the value you offer in a consistent, compelling and memorable way. This may be explicit service features: for example, visiting clients who are in care homes, or offering a fast-track service when clients need a quick response. More often than not, it’s about the culture of your firm and the quality of the staff you hire. Everything you do should reinforce the value message.
How do they do it?
While this concept applies equally to goods and services, the concept is sometimes easier to grasp within a product framework. Miele is also able to charge about 20 percent more than its competitors due to better quality, higher reliability and durability – in one word: higher value. When Gillette launched its three blade Mach3 razor, it charged 50 percent more than its most expensive product at the time, the Sensor Excel. Since then, new products have entered the market with even higher prices. Throughout it all, Gillette has gained the largest market share in its 50-year history. The reason is clear: higher client value!
Apple didn’t become the highest valued company in the world by market capitalisation with a reputation for selling products at low prices, but with a reputation of selling high value. Innovation, design, brand, system-integration – these are the value creators that Apple has employed with enormous success. They are also the value creators that technically more advanced companies such as Sony have failed to utilize.
Price is not an abstract concept…
Price is not an abstract concept. Price only has meaning when viewed against a backdrop of value. Something can be cheap but poor value or expensive and poor value. Equally, it can be very costly but good value. There are still plenty of clients who understand the distinction. For them, if you represent poor value, you will get the axe, even if you are the cheapest. Equally, many are willing and able to pay well, so long as they feel that they are getting good value.
No, law firms that have problems asking for profitable prices should first ask themselves what is wrong with their value proposition and their pricing strategies. The chances are that this is the root of their problems.
And then there are those jobs where we have managed to agree a decent fee with the client, but which then veer off piste for one reason or another, sometimes, heaven forfend, due to a needy, demanding or hopelessly disorganised client…
Fees – are clients part of the problem or part of the solution?
Ask any private-practice lawyer and they will tell you that clients frequently aggravate their costs through their own conduct. The result is costs that are higher than they could or should have been, a disgruntled client and almost inevitably, some sort of write-off or other concession. Clients are indeed part of the problem. This can be the result of many things including (but by no means limited to):
- the client’s own inefficiencies,
- with institutional clients, a lack of centralised contact with the law firm resulting in conflicting instructions and the need to communicate with multiple people on the same issues, and
- a propensity to get the law firm involved at the last minute (saves money? – no it doesn’t!) which means that things are often unnecessarily conducted in a blind panic.
The message, and its presentation
The way law firms and clients often interact is unarguably part of the problem. The question remains however, what if anything can or should firms do about it?
Many lawyers just put up with it, regarding it as simply one of the challenges that come with the job. They feel largely powerless to tell the client that they are part of the problem, something that seems anathema and counter-intuitive in the context of a service relationship. Indeed, to some it can feel rather confrontational and provocative, unprofessional even.
But it is not. Indeed, I would argue that we have a professional obligation to do so. The key here is not the message (which is undoubtedly, ‘you are part of the problem’) but rather, as with so much about sophisticated pricing execution, it is the ‘packaging’ of the message that is crucial. For example:
(a) [After the job is completed] “I know you are not happy about how the cost has run up but you need to understand that because you are so disorganised and need so much hand-holding, the costs are at least 50% more than they are for some other clients” Good luck with that conversation.
(b) [At the outset of the job] “We don’t want this to cost you any more than is necessary. There are some suggestions we can make that will help keep your costs down, some of which can be achieved at our end, some of which can only be achieved at your end. Can we work out for example how often you want updates, what communication method will work best, who the central point of contact will be, the timeframe within which you will respond and so forth. If we have a joined-up approach to this job, you can help us to help keep your costs down. Is this of any interest to you?” It is difficult to see why any client would respond negatively to that. Quite the contrary.
It’s about managing expectations…
If you commit to a fixed fee, the management of client behaviour becomes even more crucial. Whilst you should allow for some uncertainty in any instance, a problematic client can completely blow a fixed fee out of the water if you don’t keep a tight rein on them.
Many clients don’t even realise that they are in part the authors of their own costs misfortune. Others cynically view a fixed fee as a green light to treat you like an all-you-can-eat buffet.
Forthright up-front communication and management of client’s expectations is vital but this needs to be reinforced by pricing. In short, the client needs to understand in advance that not working within the agreed protocols has a cost attached to it. This of course is why agreeing the scope, assumptions and exclusions from a retainer are so very important.
Nigel gratefully acknowledges the significant help he has had in producing this article from his colleague Richard Burcher, not least in allowing material originally written by Richard to be incorporated