Mastering Legal Pricing

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix About the editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii About the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix Chapter 1: The changing landscape of legal pricing . . . . . . . . . . . . . . . . . . . 1 By Michael Roster Chapter 2: Rethinking legal pricing - from billable hours to value and profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 By James G. Perkins, Ph.D., chief operating officer and chief compliance officer, and Tiffany M. O'Neil, J.D., director of KM and technology innovation, Procopio, Cory, Hargreaves and Savitch LLP Death of the billable hour - maybe? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 AI in action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 The near future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Chapter 3: Aligning client expectations with value perception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 By Stéphanie Hamon, global head of legal external engagement, HSBC Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Value is outcome-driven and context-specific . . . . . . . . . . . . . . . . . . . . . . . 13 Pricing models must reflect value, not time . . . . . . . . . . . . . . . . . . . . . . . . . 15 Scoping as the foundation of value-based engagement . . . . . . . . . . . . . . 16 Communication and expectation management . . . . . . . . . . . . . . . . . . . . . 18 Performance metrics and accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Smart resourcing and panel management . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Governance and internal alignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Collaboration and relationship building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Chapter 4: Applying value-related qualities for better fee arrangements and greater client satisfaction . . . . . . . . . . . . . . . . . . . . . 29 By Steven A. Lauer The absence of a measure of"value"for what lawyers do for their corporate clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Recognizing and taking advantage of the utility of value-related qualities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Value-related qualities impact more than just fees, but all those effects relate to cost and value . . . . . . . . . . . . . . . . . . . . . . . 35 The parties also possess VRQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 The search for value and the question of fees . . . . . . . . . . . . . . . . . . . . . . . . 38 Chapter 5: The role of data and analytics in modern legal pricing . . . . 41 By Tanbir Jasimuddin, freelance finance and analytics transformation director Client demand - the billable hour must die . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Data and analytics - the cornerstone of modern legal pricing . . . . . . . 42 Data-informed pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Pricing for uncertainty - the quantitative techniques . . . . . . . . . . . . . . . 46 Building the analytics stack . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 The people side of pricing technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Measuring performance and profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Into the AI-enabled future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Chapter 6: Behavioral economics and legal pricing - understanding client psychology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 By Richard Burcher, founder and managing director, Validatum®, and founder and CEO, Virtual Pricing Director® Pricing as psychology, not just arithmetic . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Behavioral economics - a primer for legal professionals . . . . . . . . . . . . . 57 Understanding the client mindset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 The psychology of fee structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Choice architecture in legal pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Framing and narrative in price communication . . . . . . . . . . . . . . . . . . . . . 63 The psychology of discounts and concessions . . . . . . . . . . . . . . . . . . . . . . . 64 Client behavioral segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Practical applications in pricing conversations . . . . . . . . . . . . . . . . . . . . . . 67 Case studies and examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Pricing as a strategic differentiator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Chapter 7: Transparency and trust in the legal industry . . . . . . . . . . . . . . 73 By Jack Kingston, account manager, BigHand Building trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Is the billable hour getting in the way? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Transparency matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Empowering clients and increasing collections . . . . . . . . . . . . . . . . . . . . . . 75 Realization and increased collections for the law firm . . . . . . . . . . . . . . . 75 The power of utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Flat-fee services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Communication and process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Clear scope of work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Leveraging technology to improve client communication and transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Data visualization tools - keeping it simple(r) . . . . . . . . . . . . . . . . . . . . . . . 77 Predictability prevents pain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 People, process, and technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 The evolution of the pricing director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 What about AI? Will it help or hinder communication? . . . . . . . . . . . . . . 79 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Chapter 8: Fixed fees and predictability - meeting modern client demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 By Richard Burcher, founder and managing director, Validatum®, and founder and CEO, Virtual Pricing Director® The predictability imperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 The evolution of client demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Myths and misconceptions about fixed fees . . . . . . . . . . . . . . . . . . . . . . . . . 84 The economics of fixed fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Benefits for law firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Risks and challenges for law firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Scoping discipline and model design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Communicating and defending the fixed fee . . . . . . . . . . . . . . . . . . . . . . . . 89 Technology and data analytics as enablers . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Culture, mindset, and capability building . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Case studies, competitive advantage, and future outlook . . . . . . . . . . . . 93 Why technology solutions have emerged . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Chapter 9: Partner compensation and its impact on pricing strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 By Tim Corcoran, Corcoran Consulting Group Following the R.U.L.E.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 The price of misguided metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Cost plus is a minus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Options for realigning incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Chapter 10: Aligning compensation with value . . . . . . . . . . . . . . . . . . . . . . . 113 By Benjamin Viney, practice lead GB and Ireland - Work, Rewards, and Careers, WTW The psychology of pay and value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Increasing levels of transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Valuing and compensating the contributions of associates and partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 How has partner compensation changed over the last 40 years? . . . . 117 Valuing and compensating leadership roles . . . . . . . . . . . . . . . . . . . . . . . . . 120 Some practical suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Chapter 11: The intersection of technology and legal pricing . . . . . . . . . 125 By Richard Burcher, founder and managing director, Validatum®, and founder and CEO, Virtual Pricing Director® Introduction - a pricing inflection point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 The hybrid legal service model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 The pricing conundrum of AI-enhanced services . . . . . . . . . . . . . . . . . . . . 127 Key challenges and issues in pricing hybrid legal services . . . . . . . . . . . 128 Behavioral and psychological dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Emerging models and approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 The productization of legal services - technology as a scalable asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 The inadequacy of traditional tools (Excel and beyond) . . . . . . . . . . . . . 131 From pain point to strategic asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 A strategic shift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Embracing the new pricing paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Chapter 12: Navigating legal procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 By Steph Hogg, director of procurement consulting, Validatum Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Understanding legal procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Preparation starts long before the RFP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Preparation is a long game, not an event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Pre-positioning content and narrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Winning is about preparedness, not just responsiveness . . . . . . . . . . . . 143 Strategic withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Clarify to win . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Beware round-number discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Turning loss into win . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Procurement as partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Chapter 13: Measuring success - metrics and KPIs for legal pricing models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 By Tanbir Jasimuddin, freelance finance and analytics transformation director The importance of measuring performance - "what gets measured, gets done" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 KPIs vs metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Value drivers and the business model of a law firm . . . . . . . . . . . . . . . . . . 150 Defining the measures of performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Joining the dots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Embedding governance and discipline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Chapter 14: The future of legal services pricing - what do the next five years hold? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 By Richard Burcher, founder and managing director, Validatum®, and founder and CEO, Virtual Pricing Director® Pricing at a crossroads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 The next five years - from safe bets to stretch bets . . . . . . . . . . . . . . . . . . 162 Horizon one - the obvious and overdue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Horizon two - structural and cultural rewiring . . . . . . . . . . . . . . . . . . . . . . 166 Horizon three - radical innovation and imaginative disruption . . . . . 169 Implications for law firms - adapting to a new commercial reality . . 172 Implications for clients - becoming co-architects of value . . . . . . . . . . . 175 The human element - mindsets, habits, and resistance . . . . . . . . . . . . . . 178 From theory to practice - what progressive firms should do now . . . 181 An optimistic future for those willing to lead . . . . . . . . . . . . . . . . . . . . . . . . 184 About Globe Law and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187