The legal market continues to evolve with new and improved business practices, technology adoption and other innovative solutions. The primary reason in adopting such technologies is to improve efficiency, increase cost-savings, meet their long-term objectives and prepare for the future. Fundamentally, profitability remains a crucial component in running law firms.
BigHand's Legal Pricing and Budgeting Report emphasises the importance of financial transparency and data visibility to meet the changing client expectations and to empower their lawyers. This report consists of the latest trends and insights from 800 senior legal finance roles, Managing Partners, Legal Project Management, and Finance Systems roles from law firms of 100 + lawyers in the UK and North America.
Here are the key summaries and excerpts from the report below.
Evolving to meet client demands
Firms have responded quickly to client demands for pricing transparency and flexibility, approximately 41% (NA) and 51% (UK) provides greater visibility of the pricing breakdown during the initial phase of the matter. Furthermore, firms have introduced flexible pricing models such as upfront billing or billing on milestones, extended payment terms, AFAs including capped fees and fixed fees, and discounted standard rates, flat rates and early payment discounts - which may create profitability challenges.
Firms are not providing enough information throughout the matter process. Less than 1% (NA) and just 2% (UK) firms provide updates on budget throughout the project lifecycle on all matters – suggesting that firms are still constrained by a lack of processes and technology.
It is now essential to introduce effective planning and tracking of costs. Pricing tools that allow the adjustment of rates and resources provide firms with confidence to offer pricing flexibility to clients without fear of eradicating the profit margin. They also provide firms with the ability to replicate a budget at the touch of a button, utilising existing, proven models that are not only profitable for the business but also show value to the client.
Empowering lawyers with data visibility
While cultural change is beginning to occur across firms, many still place the burden of profitability on Partners. However, it appears Partners are consistently kept out of the loop – with respondents saying they notify Partners about budget overruns in real-time for only 39% (NA), 35% (UK) of matters.
How can Partners be held accountable for profitability and have an accurate foundation for routine client conversations without timely access to budgeting information? Why are Partners not being notified of project overruns if a matter is closed? Who is exploring what has gone wrong and learning important lessons for the future?
Given the extraordinary rate of change in client relationships, especially the rise in AFAs, a routine post-matter analysis should be a vital component of any pricing management. Without understanding which AFAs work best for which matters and/or clients, firms risk making expensive mistakes in client agreements.
Committing to pricing technology and reporting
Without real-time information, presented in easy-to-understand ways, such as role-based dashboards, firms will struggle to provide vital financial visibility at any level of the organisation, from Management and Partners to Associates.
Investing in change
There is widespread recognition both of the need for change and the availability of technology solutions to deliver accessible real-time information that can support far more effective pricing and profitability management. Over three quarters, 77% (NA) and 75% (UK) are planning to introduce a legal pricing solution in the next two years.
Law firms are now actively looking to support lawyers to achieve better financial outcomes with tools that provide data-driven budgets and costs, better resource plans, lower write-offs, and clear client reporting. An investment in matter budgeting, pricing and tracking technology that is designed for law firms to manage their matters financially will play a key role in ensuring firms can keep profitability objectives on track.
Access the full report: BigHand's The Legal Pricing and Budgeting Report
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Disclaimer: The views and opinions expressed in this article do not necessarily reflect the official policy or position of Novum Learning or Legal Practice Intelligence (LPI). While every attempt has been made to ensure that the information in this article has been obtained from reliable sources, neither Novum Learning or LPI nor the author is responsible for any errors or omissions, or for the results obtained from the use of this information, as the content published here is for information purposes only. The article does not constitute a comprehensive or complete statement of the matters discussed or the law relating thereto and does not constitute professional and/or financial advice.