This media page offers reviewers a quick and exciting look at our newly-released Fees and Pricing Benchmark Report: Law Firms & Legal Services Industry 2008. We’ve highlighted a few story ideas for you that we think are interesting and have provided materials to support these. Feel free to use whatever information you find to be interesting and thought-provoking.
You should find this information helpful in learning more about the report and the contents:
View the report landing page and order information here: Fees and Pricing Benchmark Report: Law Firms & Legal Services Industry 2008.
Email Kelly Kerr – kkerr@raintoday.com to arrange an interview with one of the report authors.
Read on for story ideas from the report, including–
1. Does Brand Make a Difference
2. Discounting: Highly Criticized Yet Highly Used
3. Client Value (and communicating it) is the Biggest Challenge to Overcome
4. Prices on the Rise Despite Threats of a Recession
5. Brand, Market Conditions, and Overhead Costs are Driving the Price Increases
After the story ideas, you’ll find analyst comments from the report authors Mike Schultz and Rachel Hayes, and verbatim comments from survey respondents.
Story Ideas
1. Does Brand Make a Difference?
While brand reputation does not distinguish firms in terms of "who earned a profit" overall, it does make a difference when looking at the level of profit earned. More than one-third (36%) of brand leaders earned a profit of 30% or more in the past year compared to only 15% of lesser known firms. Other key insights include:
- 18% of brand leaders have revenue of more than $100 million annually, versus only 2% of the lesser-known firms
- 54% of the lesser-known firms have revenue of less than $1 million versus only 13% of brand leaders
Brand leaders are more likely to have higher-revenue clients: 24% of brand leaders have clients whose revenues average upwards of $1 billion, while none of the lesser-known firms have clients of that size
Furthermore, brand leaders are more likely to have seen their annual revenue grow in the past two years: 93% of brand leaders grew versus 75% of lesser-known firms.
2. Discounting: Highly Criticized, Yet Highly Used
While law firms and legal services firms criticize the use of discounting, the majority (76%) of firms report that they do indeed discount their fees.
The average discount level: 9.9%.
Typical or Average Level of Discount vs. Published /Initially Mentioned Rates
Comment from report authors, Mike Schultz and Rachel Hayes:
With the average discount level being 9.9%, 76% of firms could be missing out on an
additional 9.9% in fees that goes straight to the bottom line.
If price is an objection (and it always is) don't jump straight to cutting price - cut the
deliverables and promised outcomes first and the decrease in price will follow (without
forfeiting project profitability.)
3. Client Value (and communicating it) is the Biggest Challenge to Overcome
The top 3 challenges of law firms and legal services firms when it comes to pricing are:
1. Uncertainty about price client will accept (43% finding this "extremely/very challenging").
2. Pressure to compete on price - clients (29% finding this "extremely/very challenging").
3. Pressure to compete on price - competition (27% finding this "extremely/ very challenging").
Challenges in Pricing Decisions
All of these challenges fall under the general category of client value, whereas other lesser challenges are internal – focused on the firm.
Comment from report authors, Mike Schultz and Rachel Hayes:
Should a firm be able to increase its perceived and real value to clients, then:
- Clients will likely be willing to accept higher fees (though, granted, with each client you may never know the exact fees they will actually be willing to accept).
- The firm will be less concerned with leaving money on the table because it will be more confident in the fees it is charging.
- Clients will pressure the firm less because they will have confidence in that firm’s ability to deliver additional value
Focusing on value you provide for clients, and strengthening the overall value proposition of your firm, can decrease some of the top challenges we found in pricing services.
4. Prices on the Rise Despite Threats of a Recession
The majority (74.4%) of law firms and legal service firms have seen their fees-for-services increase at least somewhat in the past two years and nearly 80% of firms expect their fees to increase at least somewhat in the next one to two years.
Predictions of How fees Will Change In Next 1-2 Years
Comment from report authors, Mike Schultz and Rachel Hayes:
Right now, the United States economy is uncertain at best. Yet, even though the
economy has slowed, the data suggests that most law firms and legal service firms
have either not felt an economy-induced pinch or are not adversely affected by
downturns. It will be interesting to see how the next several quarters of U.S.
economic growth (or lack thereof) will actually affect fees for legal services.
5. Costs, Market Conditions, and Brand are Driving the Price Increases
We asked law firms and legal services firms to write-in the top three factors that influenced their fee increase and found the top factors to be:
1. Competition/Market Conditions (39%)
2. Costs/Overhead (20%)
3. Company Improvement/Experience/Reputation (18%)
Don’t take our word for it, the respondents themselves said:
“Market conditions, enhanced / extended services provided to clients, and overall reputation in the market.”
“Competition, cost of living, health care costs.”
“Competition's pricing, economy, and type of customer.”
"Demand, competitive rates, starting salaries.”
“(1) Higher price was more appropriate. (2) Market research. (3) More clients so a need to raise fees to keep up with supply and demand.”
“Increased rates for professional services in our field. General up-market strategy leading to larger clients and bigger work.”
Analysis & Commentary from Mike Schultz and Rachel Hayes:
Use Incentive Fees To Drive Innovation:
The real value of contingent and incentive pricing lies in the behavioral changes and innovation they can create inside a firm. We’ve observed these strategies influencing lawyers, paralegals, and staff to work smarter, while at the same time yielding process improvements in IT, accounting, docketing, document processing, and other business services.
How and When To Engage in Price Research:
Ask and you shall receive. Time and again we’re asked, “Do you think I should ask the prospect what other firms have proposed to do, and for what fees?” While the specific dynamics of the situation warrant whether or not you should ask, if you do ask what other firms have put forth for fees, they’ll often tell you. Indeed 64% of firms surveyed find out about competitor pricing and fees from clients and prospects.
Competitive pricing research is common. Law is a competitive business — 5 out of 10 firms engage in proactive research to uncover and understand their competitors’ fee structures. The top two pricing challenges noted were “Uncertainty about what price a particular client would be willing to accept” and “Pressure to compete on price” from clients and competitors. If your firm feels these pressures, you would be wise to engage in competitive pricing research. You may not learn what a particular client might have accepted as a price, but you’ll learn much in general about what the market will bear regarding services pricing.
Verbatim Comments From Survey Respondents:
Pricing Strategies:
“We operate two businesses, one based on hourly rates, the other based on fixed fees, the fixed-fee work is more profitable.”
“The billable hour is a waste of time and money.”
What Respondents Say About Hourly Rates:
“We bill using fixed fees and selectively use time-based billing. The fixed fees are determined based on the hourly rate multiplied by the expected time necessary and expenses.”
“We mostly charge on partner and associate, two rates. Also paralegal rate but very small amount of revenue is generated by paralegals.”
“As a small-sized firm we usually charge our clients an average hourly fee for our services.”
“Overall, we realize about 75% of published rates, a combination or reduced rates work not billed and bills not paid.”
“We offer one rate ($525) for all partners. Associate rates are tiered by seniority.”
Value-Based Pricing:
“Our referral sources tell our clients that we're probably the most expensive firm in town, but worth it.”
Contingent or Incentive Fees:
“We only charge if our work is successful.”
“We have a ‘contingent fee’ committee for certain types of litigation, which determines potential profitability for the firm and decides for/against an engagement.”
“We encourage our clients to use a system that requires them to clearly define business objectives and penalize us for not reaching them and reward us for reaching the objectives. The incentives need to run in the same direction.”
Discounting:
“Sometimes we will discount standard rates slightly in order to obtain work subject to an RFP.”
“No charge for search service; pay for performance only.”
“We rarely discount, but it does happen when we believe the ‘loss leader’ has a high probability to payoff.”
Feel free to use any data, charts, or analysis laid out on this page for your own publication. If you would like to schedule an interview with one of the report authors, contact Kelly Kerr - kkerr@raintoday.com.