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The One About Value

Out on the interwebs there is much tweeting and linking about disruption, revolution, downfall and rebirth of the legal profession. One of the hot topics is about the value that lawyers deliver and how this relates to both the delivery and pricing of legal services.  In part one of this two-part blog, we claim that when it comes to how legal services are priced, there isn’t much linkage to value.

The Chatter

Most of what has been written is taken from the perspective of the law firm. And much of this doesn’t dive into any depth. It notes lawyers don’t know what their clients value or that clients don’t understand the value of what lawyers do. Pretty hollow stuff for those who work in-house or who are in law firms and work with in-house counsel.

Other articles play on emotion. One example is this piece (http://www.danielgershburg.com/ever-discount-legal-fees-ever/) that has made the re-tweet rounds. It implores law firm lawyers to never, ever offer a discount for their services. To be fair, the lawyer notes this is a complicated issue and seems to speak to lawyers who work on highly repeatable engagements like residential real estate closings for clients who many not reuse his services. But he calls discounts “bullshit” and posits to other lawyers: “It’s about value. Do you value your time? Do you do good work?” In other words, if your clients want to question your pricing, screw ‘em. Not exactly a call to listen to concerns about rates and fees these days.

The Fundamental Issues

Here are three reasons why pricing is not necessarily connected to value:

1.  Law firms have many considerations when they set pricing.  Let’s be honest. Law firms aren’t necessarily even thinking about the value a client will receive when they set pricing. Discounts are provided to some clients that the firm will want their other clients to cover with higher rates. Key partners might be recruited to other firms for more money – so keeping them happy will impact rate decisions for everyone in the firm. As a senior partner at one Minneapolis “Big Law” firm told me a year or so ago – “if we don’t raise our rates for a couple of years and everyone else does, we could wake up one day and find half our practice has moved.” Staff members have to be recruited in a competitive market – putting pressure on costs. Predictable cash flows are preferable to variable ones when operating any business. So while there are a handful of innovative firms who invite customers to value adjust their invoices, that’s a scary leap for many a firm. And, of course, the law firm is in business to make money for its owners – people who presumably, like anyone, have a significant degree of self-interest when it comes to matters of salary. Base rates, for instance, continue to rise at rates higher than inflation – 4.4% in the first half of 2014. Did the work done on that case in January suddenly become 4.4% more valuable in June?

2.  Value is in the eye of the beholder.  Not only do different customers think about value differently, the same customer may not view value the same from engagement to engagement as every matter presents its own unique business and risk profile. Our users are highly sophisticated legal services consumers. Most worked in Big Law before going in-house. If anyone knows what they like in a lawyer, it’s these folks. And from matter to matter they want to know how firms they already know and trust are willing to price the work. Often they’ll select the firm that offers the best pricing. Sometimes they won’t – showing that value isn’t always about being the lowest priced – but that they still want everyone’s “best shot” to do the work on offer.

3.  The legal marketplace remains full of inefficiencies that remain unexploited.  The typical Fortune 500 Company uses dozens of law firms in a given year. Clients have lots of choices. All those variables in the market, in turn, mean there are lots of variances in potential rates and fees that might be paid for any particular legal engagement even among firms of comparable reputation.

In part two of this series we’ll discuss the inefficiencies in the legal marketplace in more depth, delve into what some top writers on this subject have to say about value and examine steps clients and law firms are taking to derive more value for themselves.

About the author – Dave Sampsell is a 20-year lawyer with extensive experience managing large, complex, legal engagements around the world and overall corporate legal budgets. He presently serves as General Counsel of a NASDAQ listed company and is a Founder and Principal of BanyanRFP. BanyanRFP enables companies to make better counsel selection decisions, saving them time and money through an easy-to-use, private and secure online platform to create and process legal services RFPs. For more information, visit www.BanyanRFP.com

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