FUNCTION AND FORM: HOW PRICING IS TURNING INTO A SPECIALIST ROLE
Just as pricing is becoming an essential part of a law firm’ strategy, so the pricing function is becoming a clearer position in many legal practices whatever their size, says Martyn Draper
There might, in fact, be a greater imperative for mid-tier firms to focus on developing their pricing and com - mercial confidence. “The firms outside of the magic circle are operating in an exceptionally competitive market,” adds Dodds. “Whatever improvement they can make in terms of what they can recover from a client can make a major impact on profitability. There’s a strong business case for improving pricing in these firms that needs articulating.” This tallies with our experience at Totum, where we are increasingly being approached by smaller firms in - terested in recruiting candidates with pricing expertise. For these firms, the challenge is understanding and taking advantage of the latest develop - ments with more limited resources. Questions typically focus on how to prioritise investment to deliver the best results: 1 What kind of pricing resource do we need – can we find it internally or will we need to recruit externally (and, if so, from where)? 2 Do we need a full-time pricing resource? 3 What types of professionals make good pricing specialists? 4 What are the chief responsibilities and purposes of pricing roles? 5 What do pricing specialists do on a day-to-day basis? 6 Who should they report into?
tions, taking examples from the firms that have already built pricing functions, and using that to assess what firms of all sizes can learn for their own successful developments in pricing.
DEVELOPING A PRICING FUNCTION
Managers and heads of pricing functions tend to come from a mixture of backgrounds. Accountants remain predominant but the senior legal pricing community also includes those with backgrounds in revenue management, strategic research and procurement. As teams have begun to establish themselves, junior pricing roles have grown in number too with some firms hiring graduates with suitable communication traits and strong analytical skills to fill them. Degrees including economics, law, physics and business and accounting have all produced candidates who have typically entered as pricing assistants, coordinators or junior pricing analysts, sometimes straight from university, or bringing with them some experience from corporate environments. A number of these now have 12- 24 months’ experience and are well placed to advance. Internally, there remains a steady flow of employees in billing, revenue control or financial analyst teams who are making the move into pricing functions. Because they already have exposure to working in a partnership environment and interacting with partners, the transition is often a quite straightforward one. For smaller firms, there are opportunities and lessons here, both in terms of taking advantage of the examples already set by firms further along the pricing road, but also in understanding where to find pricing talent. But for Dodds, the first question for all firms should be: what do you want to achieve with a pricing function? “Are they there to help monitor and administer existing agreements? To provide financial analysis and support to partners? Or are they helping to craft the commercial proposition, including potentially negotiating with clients? Will they be responsible not just for pricing but delivery of the matter too – ie, project management? Each of these can require very different skill sets,” he says. Depending on the objectives, it may be that there is someone within the existing finance or business development (BD) and marketing team who can step up to take on more of a pricing role within the firm (an administration and analysis role would typically lend to finance, while a BD person might be more suited to a role helping to develop the firm’s value proposition). Alternatively, if a firm feels a more experienced specialist is required to implement change more speedily, the role could be combined – for example, bringing in a candidate who can cover both pricing and project management. Dodds thinks that this makes for a good combination, especially for firms starting out: “It’s effective client management essentially, so this is a good route for smaller firms that want the skills in-house,” he suggests.
Another potentially challenging issue centres on where pricing should sit in the organisational structure. Some senior pricing specialists may report directly into the firm’s executive. But where this isn’t possible for practical and sometimes political reasons, debate rages on as to whether pricing should be a finance, marketing or operations function. If your pricing expert has been brought up from finance or BD, the solution is likely to be simple. But for experts recruited externally, decisions will need to be made. Pricing teams require high levels of financial data interrogation and reliance on good numeracy and analytical skills. This coupled with the fact that the majority of law firms’ pricing functions are headed up by accountants has seen most of the functions currently sitting under the finance director. However, there is a compelling argument that pricing is a marketing discipline, and the communication and close working relationship that is required with bids and pitch specialists have led some law firms to conclude it should sit in the BD department. In our experience, the success or failure of pricing specialist roles in law firms seems to rely on its engagement with various stakeholders across a law firm. This includes partners and fee-earning teams as well as the IT, HR, business development, knowledge management and finance departments. Putting pricing functions under the umbrella of the department that has the best chance of doing this is probably the most pragmatic approach. Choosing one with a leadership team that has the best reputation for working collegiately and across disciplines would be sensible and also subjective from business to business.
As with all roles there are nuances between firms about what the pricing function or role is anticipated to do and achieve. The maturity of the function and reputation in the business will often dictate this: for example, the head of pricing role in a business where the team has been established for several years would be inappropriate in a start-up scenario. However, there are some responsibilities that run through most job descriptions regardless of the size or development point of the team. These are: l Leading the pricing process for the firm. l Developing and promoting the firm’s pricing policies and strategy, providing support to the partners in the execution of it. l Supporting partners in tactical pricing scenarios whether that is with key clients, overall sector strategies or firm-wide initiatives. l Acting as the firm’s gatekeeper of margins for a variety of deal types and proposals. l Assisting partners by providing scenario analysis and analytical support during panel appointments, pitches, requests for proposals (RfPs), large matters and renegotiations. l Taking ownership of pricing tools and promoting their use to partners and fee earners. l Coaching and supporting partners on understanding commercial restraints, including challenging accepted norms and making suggestions where improvements can be adopted. l Explaining when to use pricing levers and the advantages and disadvantages of different pricing options. l When required, taking a client-facing role during negotiations.
ATTRACTING PRICING TALENT
Since 2015, we have seen a high volume of newly created vacancies in pricing. There remains a relatively small number of individuals with three or more years’ pricing experience in a law firm environment and there has been a clamour to hire individuals with this kind of skill-set – the result being rising salary levels amid fierce competition. This could make it more difficult for smaller firms to compete to attract the best talent. Having said that, firms that can articulate their pricing strategy, show that they are prioritising pricing and have long-term objectives in place for the function will be attractive. With more people taking junior pricing functions in larger firms, opportunities may also increase for smaller firms to snap up that talent by offering them a good step up into more senior roles. Alternatively, firms may already have individuals in the business who can lend support on day-to-day bids and tender submissions and can hire someone who can implement strategic directions, which doesn’t necessarily require experience of the nuances of legal pricing. Whatever approach is taken, it is worth remembering that smaller firms can often offer good candidates a unique ability to make their mark: being able to shape a firm’s pricing strategy and processes from the get-go is an enticing proposition for candidates keen to make a difference.
The benefits of pricing expertise in law is indisputable. A McKinsey article from 2015 reported, “… the systematic improvement of pricing capabilities can have a lasting positive impact… [and] typically translate into an increase in return on sales of two to seven percentage points, depending on sector.” As pricing functions are becoming better established and their purpose and value recognised more widely within firms, so the demand on their input and expertise grows. In many firms this has happened dramatically and at a quicker pace than anticipated, which can leave teams under-resourced and over-worked. This will change in time as more law firms of all sizes bring pricing talent into the profession. In the short term, however, firms need to think creatively. “Recruiting someone may mean going beyond the legal market,” agrees Dodds. “Are there people with complementary skills – from accountancy, consultancy or actuarial firms, where people do these commercial roles and are used to working in a partner environment? I know a number of people over here and in the US who are extremely successful in law firms but came from completely different sectors – from the travel industry and manufacturing, for example.” My own experience is that the firms that are willing to think outside of the box are those that also get the best choice of talent from a diverse candidate shortlist. Ever more firms of all sizes are making pricing a focal point of their on-going business strategy. Whether they are using internal resource or looking to recruit expertise externally, pricing has become a critical component of a firm’s business services offering. This is a function that is rapidly growing both upwards and outwards.