In Part I of this two-part blog we posted why pricing in the legal market is not necessarily tied to the value of legal services and touched upon how the legal marketplace is inefficient. In Part II, we now delve into what some top thinkers have to say about value when it comes to legal services, take a closer look at pricing inefficiencies in the legal marketplace and highlight some innovative solutions that are delivering more value to both clients and law firms.

Charge Me, But Not More Than Anyone Else Would!!

One firm blog that we think is required reading is published by Beaton Consulting, led by George Beaton (www.beatonglobal.com/blog). We were especially intrigued by this video from 2013 (https://www.youtube.com/watch?v=zngHnwKa2vI). It summarizes the results of research Beaton Consulting conducted on factors that impact a client’s view of value. Among a number of interesting points, two stuck out for us.

First, clients who buy at the high end of the market will perceive a loss of value if they are provided with a discount. I’m sure some would debate the point, but there’s some intuition in this. Is a Mercedes going to be perceived the same way if there’s a big sign on the front of the dealership offering 30% off the MSRP? Much, much more telling, however, is the second point: clients who don’t believe they are paying a competitive market rate will feel disenfranchised. Who, after all, wants to feel they’re being taken for a ride? But this conclusion begs the fundamental question – what is the market rate?

But What Do Other Firms Charge?

The fact is, most folks really don’t know. Over and over clients of BanyanRFP have seen significant pricing variance among firms and lawyers with tremendous reputations. Firms and lawyers our clients already know and trust to do the work.   Variances in rates of 15-20% appear among top law firms from the same city. Estimated total fees or proposed fixed fees or fee caps can vary by enormous sums. When lawyers from different metros are asked to bid on the same project those variances can obviously be much greater: BanyanRFP has seen variances on both average rates and average blended rates go higher well in excess of 50% between coastal and Midwest firms.

It is still early days for BanyanaRFP, but its data-so-far mirrors that of broader surveys in the industry. LexisNexis recently released this chart (http://businessoflawblog.com/2014/08/law-firm-rates/?sf30280755=1) based on thousands of legal bills. It shows average blended rates charged by law firms across a range of matters. Fascinating that within the middle half of the market, rates are volatile for almost every type of work and can vary by hundreds of dollars per hour.

What explains that variance in price? I’m sure some in the law firm world would like to say quality. Sure, quality matters. There’s always a qualitative element to how companies select counsel. But quality alone does not explain large variances in rates among law firms hand picked by companies to be put through competitive counsel selection processes. What explains these variances are market inefficiencies. Law firms with different cost structures, client rosters, needs to secure work and perceptions of what they should be able to charge for work that companies apparently believe can be done competently by many others. Unless you fully understand these types of factors absent an RFP, there are high odds that you will pay above market value for your work.

So What is the Key To Value?

Those inefficiencies bring us back to the discussion of the value of legal services. How do law firms and their clients derive more value from the work that law firms offer and perform? John E. Grant, III, an expert on LEAN methodologies who consults with law firms and legal departments and writes extensively at www.legalvaluetheory.com.

Grant provides great baseline discussions on value and how to create more of it. He sees value in the following equation: Value = Benefit – Investment. Said another way, if you are a consumer of legal services, you want to derive more benefit than investment to ascribe any value to the law firm’s offerings. If you’re a law firm, that means to deliver more value, you either need to increase the benefits you provide, reduce your client’s investment or both.

Grant also goes on to note that LEAN simply isn’t about driving greater and greater efficiencies in cost (i.e. investment), but rather every bit as much about finding ways to deliver new and greater benefits. To Grant, one of the great benefits of leveraging LEAN is that it forces companies and law firms to think about problems in new ways. Thinking about problems in new ways leads to innovative solutions. And that innovation, in turn, creates new value streams for the law firm to exploit.

Great Innovation – BigLaw

Rather than focus on well-known innovations being used to drive more value for law firms and clients (e.g. e-billing, matter management applications,  etc.), let’s look at some compelling innovation from Big Law that is driving value.

1 – Let’s start with Cooley LLP. Cooley just launched an online portal focused on start-up businesses that provides great guidance on a range of topics, offers insights on trends and helps companies (read potential clients) create a host of documents from scratch. In about two minutes we were able to generate a simple but high quality advisor agreement using their template. The site is free to use and explore. And while that may not create immediate returns for Cooley, it would portend to provide them with a host of clients down the road. It obviously creates a ton of “value” for start-ups right now.   www.cooleygo.com

2 – Next up is Seyfarth Shaw. Their SeyfarthLean initiative has been getting a ton of attention in the Twittersphere – most notably for bringing Agile project management principles into legal projects. Separately, Seyfarth recently spoke about how they are working to create applications and services their clients may not be clamoring for today but that they expect “will be” asked for in the future. For now, one of the outputs of SeyfarthLean is a site made available to firm clients called SeyfarthLink. It is a platform that clients can use to gain access to a wealth of resources that include, among other items, a document generator for over 100 different legal-form documents and agreements. The site appears to only be available to firm clients. www.seyfarthlink.com

3 – Then there’s Littler Mendelson. Among the applications and platforms Littler is using to drive value to clients is LittlerGPS. This outward facing platform allows clients to purchase a subscription for up-to-date information on the web of employment laws of all 50 U.S. states (actually, 52 jurisdictions are covered). The firm says the platform is aggressively priced (we’ve not checked). Clients receive benefit in the form of legal information they know is current and maintained by a top employment law firm. The law firm gains more inroads with existing and new clients and has created a revenue generating product. www.littler.com/products-and-services/littler-gps

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.