Minnesota
Thoughts and news from the LMA-MN – Midwest Region – Minnesota Local Group

LMA-MN July 2014 Program Handouts Now Available

Thanks to Colin Jasper for presenting a great webinar on pricing legal services at LMA-MN’s July 2014 program. Colin has graciously provided our chapter with his presentation deck


ATTN: LMA Members – Member Engagement Survey Now Live

The LMA Technology Committee has created a member engagement survey to evaluate LMA Connect and other social media platforms. We encourage all LMA members to take the survey and share their feedback.


Pricing Myths

Colin Jasper, Director, Jasper Consulting

What impact would a 5% improvement in pricing have on your firm? Try this simple exercise. Multiply the revenue of your firm by 5%. Note that this 5% increase in revenue all flows through to profit. Now divide this amount by the number of partners in your firm. This is the average increase in profit per partner that a 5% pricing increase will deliver. For many firms this equates to $50k-$100k or more per partner. Of course the opposite is also true. If our pricing declines by 5%, then partner profits may also decline by $50k-$100k or more per partner.

This simple exercise highlights the significant impact that pricing has on a law firm’s profitability. In fact pricing has a greater impact on the profitability of a law firm than any other lever. Given this, you would think that leaders would take all steps necessary to improve their pricing. Yet permeating the psyche of many firms are inaccurate assumptions that inhibit pricing performance. This is highlighted as much by the myths that exist about pricing as by the specific behaviour displayed by firms.

Myth #1 – Losing work based on price indicates our pricing strategy isn’t working

The scenario is often as follows. A team spends many weeks putting together a bid for a key target. Significant thought and effort go into determining how the project would most effectively be delivered. The team refines the communication of its capabilities and elaborates with specific experience it has from previous work. Many hours are spent assembling the bid, including some very late nights nearing the deadline. In the end the team is proud of its efforts and confident that it has effectively communicated why it would be the ideal partner for the project.

Then, after waiting several weeks, the client finally advises that they have chosen another firm. The frustration is understandable. And the immediate feedback from the client is that your price was too high. Everyone’s disappointed. Nobody wants to feel this way again and so the push begins to ‘fix’ the firm’s pricing.

But before we move too much further perhaps we need to understand what the client meant by “your price was too high”. One possibility is that your offer was perceived to be identical to the winning bidder in every way except price. However this is unlikely. Most clients recognize that the benefits delivered by one firm, by the very nature of professional services, will not be the same as the benefits delivered by any other firm. The experience of the team, relationships with the client and service levels provided – amongst other things – will clearly vary from one individual to another and from one team to another.

What is more likely from the client’s perspective is that they received a range of bids from a number of firms, which provided them with different benefits. They then assessed these benefits relative to the price. Having made this assessment they chose the firm that provided the greatest value to them.

The feedback from the client can therefore be that the price was too high (relative to the benefits). Alternatively, the client could say that the benefits you provided based on the team proposed, their experience and the proposed approach were not good enough (to justify the price). Both statements are a true reflection of the client’s thinking. The former statement is the most likely feedback.

If you are losing a lot of work based on price then your pricing strategy may not be appropriate. However an effective pricing strategy will still result in losing some work because of price. If you never lose work because of price, then your pricing strategy is definitely inappropriate. You are clearly pricing too low.

Myth #2 – Costing = pricing

I recall a Managing Partner telling me how they had just completed a major project to develop the firm’s pricing capabilities. This involved undertaking quite a sophisticated assessment of past matters to understand the cost of various elements of those projects. Based on this analysis, the Managing Partner stated that the firm was confident that it could now price with a high degree of accuracy. While I applaud the efforts, significantly more work was required for the firm to be truly able to “price with a high degree of accuracy”.

The error this firm made was to assume that costing is pricing. While the cost of a matter is a key input into pricing, it is not the only input. Firms also need to consider the degree of competition, competitors’ pricing strategies, the role of price, the value being created for clients and the firm’s overall pricing objectives. The firm above had effectively built one wall of the house, stood back admiringly and was ready to move in.

While many firms state that they appreciate there is more to pricing than costing, their behaviour fails to reflect this. A common financial metric used in many firms is a multiplier – the expectation that each fee earner will deliver fees that are a multiple of their costs. This is not inappropriate as a costing tool, but should be seen as only one input into pricing. In firms where this thinking is embedded it limits the upside that firms should be achieving. The focus of pricing within firms is often about bringing the bottom 10-20% up to a minimum level. Generally the greater opportunity is to push the top 10-20% to where they could be.

Myth #3 – Pricing strategy should be driven by client feedback

Having recognized that a robust pricing strategy requires input on client value and competitors, firms often seek to address these issues through client feedback. While this is not inappropriate, care needs to be taken regarding how this feedback is obtained and how it is used.

The first challenge in asking clients about your pricing is to obtain honest feedback. Clients would generally like to obtain your services at as low a price as possible. Hence common feedback from loyal clients is that they love the service, value the relationship, are appreciative of the efforts made to understand their business and believe the technical expertise is unquestioned – however you’re very expensive.

Based solely on such client feedback you would be encouraged to reduce your price. But if they are loyal clients, then it would appear that price is not a barrier to purchase. That said, we should not be complacent in this regard. It’s appropriate to find ways to help the client reduce their overall spend and at the very least demonstrate that we are spending their money wisely.

Myth #4 – Competitive markets = price-sensitive markets

A partner was recently explaining to me that their market was the most competitive market in the country and therefore they needed to price aggressively. The implicit assumption is that competitive markets are price sensitive markets.

While it is true that a lack of competition generally leads to a lack of price sensitively, the opposite is not always true. Take for example the upmarket sports car market. It is highly competitive. Aston Martin, Ferrari, Lamborghini, Maserati and Porsche are just a few of the brands that compete for a relatively small segment. Competition is fierce and the tactics undertaken to target prospects, build loyalty and increase share are highly sophisticated. But while the market is highly competitive, it is not price-sensitive.

Markets are only price sensitive where clients have multiple options that satisfy their needs and price is a primary driver of choice. If clients are not buying based on price, don’t sell on price. Price is playing an increasingly important role in some legal services. However the intangible nature of professional services means that for most clients if they find a firm that has the expertise, delivers a great service, understands them, continues to improve, with who they have a strong, trusting relationship, then paying a 5, 10 or 20% premium will be justifiable.

Managing the Myths

Individuals and firms produce poor results when they have the wrong mind-set. It’s understandable that partners are willing to offer clients a 10% discount if their focus is on maximising revenue. But when made aware that in doing so they are giving away one-third of the profit, behaviors may change.

If we believe the feedback from clients that our fees are too high, we will become increasingly disillusioned when as we decrease our price we still receive the same feedback.

And if our attitude to pricing stops at costing matters, we are going to fail to realize the significantly better outcomes that could possibly be achieved.

While firms should continue to invest in developing their pricing capabilities, the starting point should be to ensure that all those involved in the pricing process hold healthy attitudes and that unhealthy myths are debunked.

Learn more about pricing legal services. Attend the July 15, 2014 LMA-MN program featuring Colin Jasper. Register today!


Fair to the client. Fair to the firm. How to find the ideal price for legal services.

Does your pricing capability provide your firm with a competitive advantage? Legal marketing professionals—small, mid to large firms—need to understand how to price legal services. The  LMA-MN July 15 webinar “Pricing Legal Services” with pricing consultant Colin Jasper will help you understand: Contemporary pricing theory as it relates to legal services

  • Your firm’s pricing capability
  • Methods of setting a price
  • Pricing structures

Strategies for improving your firm’s pricing outcomes

  • Four keys to the pricing process

Techniques to avoid price competition

  • Improve your price-setting discretion
  • Minimize the likelihood of competing on price
  • Demonstrate value

About the Presenter As the Director of Jasper Consulting, Colin Jasper’s focus is on assisting professional service firms to create greater value for their clients and to capture a fair share of that value for themselves. Colin conducts regular research amongst general counsel on their buying behavior and their attitudes to law firms and is the co-founder of the Legal Pricing Roundtable (New York). Register for the July 15 webinar today!


Reminder: Register for the LMA-MN July Webinar Program

Join LMA-MN colleagues—and invite your firm’s finance and pricing professionals—for the final webinar program of the summer and stay for happy hour & networking! Please note the 4:00 pm start time. At this time, the webinar is only offered as a live presentation (no dial-in option).

Legal Marketing Association Minnesota Chapter

LMA-MN July Webinar Program

When
Tuesday July 15, 2014 from 4:00 PM to 5:00 PM CDT
Where
Faegre Baker Daniels
90 South Seventh Street
2200 Wells Fargo Center
Floor 21
Minneapolis, MN 55402
Driving Directions

Tuesday, July 15, 2014

Registration: 3:30 PM

Program: 4:00-5:00 PM
Happy hour & networking to follow.

Register Now!
I can’t make it

 

Follow us on Twitter

Pricing Legal Services 
Pricing has a greater impact of the profitability of law firms than any other lever and yet rarely receives the management attention it deserves. This workshop looks at contemporary pricing theory as it relates to legal services, approaches used by leading professional service firms to maximize pricing outcomes and a range of techniques that can be used to avoid price competition.
About the presenter: 


As the Director of Jasper Consulting, Colin’s focus is on assisting professional service firms to create greater value for their clients and to capture a fair share of that value for themselves.

Colin conducts regular research amongst general counsel on their buying behaviour and their attitudes to law firms and is the co-founder of the Legal Pricing Roundtable (New York).

His articles have been published in a range of journals and magazines including Professional Service Firms JournalThe Law Management Journal, and the Journal of the Professional Pricing Society. He authored the pricing chapter in the American Bar Association book, The Power of Legal Project Management (2014).

Website: www.jasperconsulting.com.au


Powered by WordPress | Designed by Elegant Themes