Pricing the Firm's Legal Services: Starting Points to Address Options
| Publication year | 1992 |
| Pages | 259 |
| Citation | Vol. 21 No. 2 Pg. 259 |
1992, February, Pg. 259. Pricing the Firm's Legal Services: Starting Points to Address Options
Discussion of the challenges concerning fee arrangements, hourly rates and billing practices abounds in firms and client organizations. This article discusses three factors which make pricing difficult and offers suggestions for overcoming them.
Pricing difficulties that many firms encounter arise primarily from the following factors:
1. Client price sensitivity and bargaining power have created an unprecedented shift in the balance of power between buyers and sellers of legal services.
2. Many commercial practice firms are entrenched in the habit of projecting revenue based solely on the amount of billable hours available from their lawyers. Other profitability structures for generating revenue that are based not only on time expended either are overlooked or discounted.
3. Services offered to a target market often are not sufficiently described from a purchaser's perspective nor packaged differently from those offered by competitors.
Although fee arrangements are undergoing change, few of the adjustments are a result of purposeful planning and strategic pricing. Instead, variations in fee arrangements and discounting of rates are largely attributable to case-by-case reactions---by a firm's "rainmakers," new matter committee or billing attorney---to a particular client's bargaining power and to an attorney's personal dissatisfaction with hourly billing.
To be successful in the coming years, firms must examine closely clients' needs and develop responsive pricing. A closer look at the factors listed above may help a firm determine pricing structures which will work for the firm and its clients.
There are several reasons why client sensitivity to price has intensified. One reason is that corporate personnel, including legal departments, constantly are challenged to increase internal quality and efficiency, meet strict budget demands and maximize outside vendor relationships. Part of this corporate challenge is to reduce legal fees because the cost of outside counsel is a significant portion of a corporate law department's budget.
Pricing issues also become more important to clients when, for example, they perceive that the value of a particular legal service needed is relatively low in comparison to other needs; the fee arrangement offered by a firm is incompatible with the client's objective; or a client believes that many lawyers can serve its needs equally well and that those lawyers are equally eager to gain the client's business.
In part because the potential for conflicts of interest looms large, companies often seek to spread their work among a number of firms they regard as possessing similar capabilities. For example, oil and gas companies exhibit this attitude regarding title work, as do insurance companies when hiring outside counsel to defend...
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