The increasing complexity in recent years of how clients can pay for legal services has given rise to a new breed of legal professional: The pricing strategist.
Hogan Lovells in 2015 appointed pricing expert Terry Williams, who has established a 10-person in-house team dedicated to strategic pricing that works off of client-specific data. Although Hogan Lovells’ investment in the size and complexity of its team was noted by Law.com as robust even for a firm so large, that increased dedication of resources to pricing strategy is echoing across the legal profession.
Although devoting resources to pricing is common at large and midsize law firms, they will likely begin to use professionals who are solely dedicated to the task more and more frequently, attorney and law firm consultant Roxanne Jensen of EvolveLaw said.
“As there are more difficulties with change management and more complexity in these deals, then the qualifications of the pricing professionals really need to be refined, and the demand will grow for them over time,” Jensen said. She added that people doing pricing strategy work need to have expertise in related fields, such as the business of law and finance. Pricing professionals will likely come from advanced positions in industries the law firms serve.
“They should be pragmatic, but good influences. … Being a good communicator and influence should be extremely helpful,” Jensen said.
Steven Petrie, Faegre Baker Daniels’ chief strategy officer, said the firm has a strategic analysis and pricing team consisting of a director below him and two analysts, with plans to add another analyst. The team also focuses on practice management and other business analytics, but Petrie said the time team members devote to pricing has increased in the decade since he joined the firm. As much as 75 percent of their daily work comprises pricing work, he said.
“It’s definitely been an expanding area of internal service that we provide to our lawyers,” Petrie said.
Jensen said managing pricing trickles down to the smaller firms as well. Often someone in a practice management capacity will take charge of pricing strategies and collaborate with other groups, such as marketing, finance and technology.
“The need for pricing efficiencies, I think, is pretty universal in the marketplace,” she said. A stagnation in spending on legal services has precipitated the widespread ability to demand pricing arrangements other than traditional billed hours. Spending has actually decreased once adjusted for inflation, she added.
“From top to bottom, the legal services marketplace has changed,” she said, explaining that she doesn’t believe a client’s size dictates their ability to ask for alternative pricing arrangements.
But Jensen also said other disruptors, such as technology changes and legal process outsourcing, were eventually putting pressure on pricing strategies for services anyway. “But everything was accelerated by the Great Recession in 2008, so it’s just moving really fast.”
“The best approach to executing on an alternative pricing approach is to take a value approach where there’s a joint agreement between the client and the law firm on the value that’s provided by the law firm and how it’s appropriate to compensate for that,” she said. In the best circumstances, both the firm and client will have data specific to the client that the firm can parse to better glean the value they provide, she said.
Clients are also starting to develop their own data to get a sense of their return on investment. Firms are developing better cost predictors and clients collect and share data about pricing across a large range of legal services, she said.
“For law firms to grow revenue, you’re ultimately having to take share from someone else,” Petrie said. “So that portion of the pie that is left for large law firms like us is relatively flat, and has been, for the last decade.” He said other pressures include the growth of in-house legal departments and companies consolidating the number of law firms they work with.
Petrie acknowledged that value is a complicated, subjective concept. “When our team is working with our lawyers, [one thing] that we always advise them on is to really get behind the client’s objectives in asking for a creative fee proposal,” he said.
Minneapolis-based Faegre Baker Daniels has offices in primary markets such as Los Angeles and Chicago but also in a handful of secondary locations, including Denver and Indianapolis. Petrie said he believes the firm’s presence in smaller markets has given them an advantage in pricing strategies because they can compete on cost even for clients located in larger markets.
He said the strategic analysis and pricing team largely plays a support and advisory role for the Faegre Baker Daniels’ partners. They will point out red flags in potential fee arrangements, or advise on their structures based on past lessons learned. The firm is also in the process of developing a custom pricing resource group, which will use expertise from experienced partners who have seen success using alternative fee arrangements.
Petrie said with the amount of time the team devotes to pricing work, Faegre Baker Daniels could probably have one analyst devoted entirely to pricing and another to other business analytics and practice management if desired. But he said having diversity in their responsibilities is valuable.
“The volume of work would justify it. The question is, do you actually get a better product by having some people who get to wear different hats, and see the firm in a variety of different ways?”
—Julia Cardi