This post concludes the Bloomberg Law Reports article I wrote with Jonathan Groner on “The Rise of the Pricing Director.” Part 1 can be found here. To download a pdf of the complete article, click here.
At Winston & Strawn, the pricing strategy role is shared by the co-leaders of the firm’s AFA initiative: Kathrine Cain, the manager of business intelligence, and Keri Gavin, the controller. Cain reports to the firm’s director of business development, and Gavin reports to the firm’s CFO, but they work closely together to analyze the information that the firm needs for competitive pricing.
“The partners are encouraged to reach out to us for assistance with requests for alternative fee arrangements and budgets,” Cain says. “Some partners were already very good at defining budgets and pricing strategies, while some were new to the concepts. We coach them through the process of defining a budget and identifying pricing options that align with their client’s needs and expectations. In the two years since starting the formal initiative, we have made significant strides in providing the tools and techniques to support our lawyers and clients.”
Cain says she and Gavin always consider a wide range of options for AFA proposals, based on the client’s expectations and goals as well as the projected internal rate of return, the anticipated level of staffing for the matter, benchmarks based on previous matters, the firm’s history with that particular client, and other factors.
Glitzenstein says that since his firm specializes in intellectual property law, many of his firm’s cases fall into just a few categories, such as patent litigation, Fish & Richardson is able to ask the same questions in nearly every case and obtain useful answers that will help in its pricing.“We prefer to price on an AFA basis,” he says. “To do that, my staff goes through a case and interviews the lead attorney about the details. Is it a judge whom we know well? How many patents are under litigation? What is the technology? How complex is it? As a result of inquiries like this, we can put together a litigation budget and use it as a guide for pricing. By asking the right questions, we can predict which cases will be more challenging to handle.”
“We think that the fixed-fee arrangements that Fish & Richardson often proposes improve aspects of the lawyer-client relationship,” Glitzenstein says. “Fixed fees allow lawyers and clients to focus on the merits of the case so that they can reach the best result, without the same level of concern as in a traditional hourly fee arrangement that changes to the case strategy, or unexpected developments, will significantly increase the cost to the client.”
Of course, in every firm, ultimately the success or failure of this new pricing movement will depend on buy in from the partners.
Mayer Brown’s Byrd says that although it is not required that partners consult him when they need to respond to an RFP or develop an AFA proposal, it is highly recommended, and that his plate has been full.
Matt Laws, head of the pricing program at Reed Smith, where just about 20 percent of the annual revenue comes from AFAs, says his role “has been very well received . . .. Partners do tend to call every time a potential engagement comes up,” Laws says.
Laws says Reed Smith does not have “any strict guidelines about what we can or cannot do to win a client’s business. Any proactive approach to meeting a client’s needs is likely to be approved.”
In fact, Laws says he sometimes finds himself and his team having direct contact with the clients’ financial officers during the bidding process―something that would have been unthinkable only a few years ago. “In the old relationship, partners would work with corporate general counsel. Now, we see finance people and CFOs from the client companies. The process of online bidding, which has become more and more common, reduces the importance of the historical relationship between the firm and the client.”
Another interesting trend in this area is a growing emphasis on project management. According to Baker & McKenzie’s Dodds: “Over the last 18 months, the biggest change in the legal pricing field is a greater emphasis on project management and how we deliver services. Law firm clients are now looking for demonstrable value and efficiency, and we should not shy away from this challenge” This should not be surprising, given that once a firm is committed to a fixed price or an hourly fee cap, the most important determinant of profitability is being able to meet the client’s needs within a predetermined budget.
That’s why efficiency is on everyone’s minds these days. In the Altman Weil survey quoted at the beginning of this article, managing partners reviewed 15 current trends, and gave their opinions about which were temporary and which were permanent. Price competition was number two on the list, with 90 percent saying it was permanent. The only trend rated higher was the related idea of improving practice efficiency. 94 percent saw that as a permanent change.
The trend of appointing specialized pricing officials and devoting more effort to analyzing pricing is expected to increase. The International Legal Technology Association (ILTA) recently formed a Financial Management Peer Group to support this movement.
“Pricing is both an art and a science,” says Vinson & Elkins’ Brown. “We need to focus on both if we are going to grow our business. There are a host of pricing strategies out there, and lawyers are now just touching the surface. This is a dynamic world and my job is changing on almost a daily basis. The heat is getting turned up on law firms, and the pace of change is accelerating.”