Structures and prices: How do you provide value to your clients?

Do you price to structure or are you confident enough to structure to price? Do you understand your firm’s value proposition?

As professionals, many firms have spent years building the traditional team pyramid to service clients. The main problem those firms have historically faced is how to deal with the pyramid as the lawyers within it became more senior. That problem remains, but it has been overtaken by a much more fundamental problem in the profession: a recognition that one size no longer fits all.

Clients are seeking ‘value’ in everything they buy from law firms. When clients ask for flexible or innovative pricing, they don’t always mean fixed fees vs. hourly rates; they mean how can the firm process their work in a way that is an appropriate price for them, recognising that the firm will need to make a margin. Clients are certainly not interested in hearing about the different seniorities within our teams, the increasing salary costs or the corresponding increasing charge-out rates. They need a solution that works for them.

It is important to remember, however – and I firmly believe this – that good value does not necessarily mean cheap. What is wrong (and something I often hear) is that we all need to reduce prices and margins to survive. This is not about price; it is about understanding what we are delivering, why we are delivering it and to whom – what is its value?

The new competitors in the market – firms which are starting from scratch on structures and pricing – are ensuring that we respond quickly to this client demand for value. The lawyers on demand models, the growing in-house teams and new ABS market entrants are all challenging traditional pricing models.

The challenge I face as a managing partner is that we, as a firm, are not starting from scratch. We have team structures in place and we have lawyers who are used to working in particular ways with their clients – and who are perhaps not ready to accept that some of what they do is capable of being done at a much more junior level or even by technology.

I believe that the challenge for firms is not to fixate on pricing but to consider their work products, their market position, their methods of delivery, their structure and, above all else, what their work is worth to the client. There are five key steps in this process.

1. Decide what your firm is good at – what services/products do you do well and, ideally, better than others in the market.

2. Decide which section of the market will be attracted by those services and products and, as a result, where you want to position your firm in the market.

3. Decide what value your clients will ascribe to those products and services.

4. Consider how teams should be structured and what technology your firm requires to deliver those services as efficiently as possible, without compromising on quality.

5. Once you are satisfied that you have the structure in place to deliver the services as efficiently as you possibly can with the right level of expertise, price that work to make a margin for the firm. Too often, firms are trying to service all levels of the market with different types of products but with only one team, one hourly rate and one method of pricing; the pricing of a job is dictated by the structure of the team delivering the service, not by the value delivered to the client. Unfortunately, those firms are no longer fit for purpose.

I have found it a challenge to motivate and engage partners in this debate because much of it hinges on those partners accepting that some of what they do is no longer niche and boutique, and some of what they do can even be done by a computer. That is a difficult management journey; one which takes time and patience and skill to motivate during a tough transition. But, it is essential if you want your firm to succeed in today’s market.

Ask your partners what they think their work product is worth to their clients and what value they personally add. See whether you get the answers you expect.