Opportunities Abound with Alternative Fee Arrangements

DerekSchutz — Tue, 04 Aug 2009 13:00:00 GMT

We've heard from a lot of clients recently on the subject of collections and cash flow. It seems like everyone is talking about it, probably because they are concerned that they are going to be caught on the wrong side of the equation. Having a fair amount of insight into the financial statistics of more then a few law firms, I have to say that I definitely understand why law firms are nervous. I, and others, have written numerous articles on the dangers of aging inventory and the issues of poor cash flow management. In my job as a consultant I have advised clients with these problems in their firms' business models. That part is easy. The part that is much harder is coming up with viable solutions. Telling law firms to simply bill and collect faster is, well, too simple. Sure a firm can more often then not send bills out the door faster, but how do you improve the pace of collections?

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Law Firm Pricing Management

Admin — Thu, 21 Feb 2008 08:00:46 GMT

One of the more common questions I hear asked by attorneys is how to set their rates. Many attorneys raise their rates periodically but not as part of a strategy to maintain or increase margin. Pricing management is addressed in detail in an article in Managing Partner Magazine titled Pricing Management. Noting that most firms still use a "reactive" approach to pricing, the article suggests instituting a pricing management function within the firm closely tied to the finance and marketing functions. A systematic approach is recommended that positions pricing with your strategic goals.

According to the article, firms should prioritize consideration of the price it will charge for its services and to ensure that the firm’s value and pricing propositions are constantly reviewed and improved upon, and communicated to clients at all levels of the firm. Firms should manage the pricing function around three levels: industry, practice and engagement level.

Industry Level: invest in understanding how variables drive supply and demand for legal services in your particular industry of practice.
- Systemic drivers: focus on short and long term considerations in the industry affecting client demand.
- Service delivery: leverage your firm's technology and skills as value that sets your firm apart
- Client patterns: how often they are a source of new business, how well they pay, etc.
- Talent supply: look into alternatives in how services can be delivered to be more cost effective.
- Pricing Czar: A finance director or equity partner should be dedicated to reviewing these drivers and organizing a pricing strategy and structure that meets the financial needs of the firm.
Practice Level: understand the markets that your firm and its practices operate.
- Testing client perceptions: client interviews, surveys, etc to better understand client need and provide better value.
- Discriminating among clients: develop rates that fit the client and practice area, not one-size-fits-all.
- Objectively reviewing fee schedule: periodically check market position as well as reputation of key partners by conducting blind study of key clients.
- Central pricing function supporting practice-group leaders: remove discretion in pricing except at practice group level - discounting should be first approved by pricing czar.
Engagement Level: getting the best price for each matter
- Training: partners need to understand the effect even minor discounts have on the bottom line; develop skill in communicating value.
- Tools: having proper tools to measure performance so as to maximize profitability based on comparison of historically similar matters.
- Systems: develop processes to review efficiency and improve on it to better price similar matters in the future.

Though some feel trapped in their pricing scheme, firms can and should plan how they price their services. With a well-conceived and implemented pricing plan, firms can be proactive and systematic in developing a pricing structure aligned with their strategic plan.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Make More Rain : cash flow issues, pricing

Opportunities Abound with Alternative Fee Arrangements

Law Firm Pricing Management