April 07, 2022
In the past two years, law firms saw unprecedented profitability and growth, fueled by the demand for legal services and the drastic reduction in pandemic-related expenses. Now that the industry has entered a new normal driven by virtual and hybrid work dynamics, law firms need to think about new priorities, prospects, and pitfalls.
How can law firms improve on, even surpass, last year’s performance? How can they own their strengths to create more opportunities to grow and become more profitable?
These were among the topics tackled at the 10th Annual Managing Law Firm Profitability, Pricing and Data Analytics (Virtual) Conference, where Williams Lea CEO Clare Hart joined an esteemed panel of Chief Innovation Value Officers and pricing experts from top law firms and client legal departments.
Here are the key takeaways from the event.
A balancing act: Value from a law firm’s perspective
As the global post-pandemic market ushered in new ways of working and doing business, law firms found themselves juggling many balls, from controlling costs to strengthening client relationships, all while keeping an eye on profits.
In fact, improving on last year’s profit performance seems to be on every law firm leader’s mind. However, profitability isn’t the only lens through which law firms should look. “Profitability belongs in the conversation with clients,” one panelist said. “It sets up a nice framework to have a good dialogue, but it isn’t the only piece.”
Another panelist agreed, “It’s not just profitability or the bottom line, there’s also staffing, growth strategies, even the cultural aspect. We should be able to bring those pieces together.”
Looking at things from a macro-level point of view is something law firms need to do more of, and this is where value comes in. Law firms, like any business, are hardwired to focus on financial gains, but focusing on value and having a strong value proposition makes them more competitive. “Behind the scenes, the conversations aren’t about numbers, but whether or not we’re delivering value at the right level,” one panelist shared. “Client conversations should really be more about value and not about ‘what you need to pay to reach X’.”
When conversations revolve around value, more opportunities arise, such as unbundling the supply chain and negotiating alternative fee arrangements or flat fees. In doing this, law firms can be confident that their clients are happy paying the price for the value they’re getting.
Creating value also empowers law firms to be more agile, especially when it comes to disaggregating and outsourcing services. “It all makes sense, outsourcing drives cost savings,” said Clare Hart, Williams Lea CEO. “But I think the most important part is that the legal sector is becoming more like other sectors, outsourcing services that aren’t strategic, so they can focus on practicing law and providing value to clients.”
Justifying and understanding cost: Value from a client’s perspective
“Every year, we have the same conversation about budgets,” said one client panelist. “It’s a never-ending process to justify the cost structure of our outside counsel.”
This is the pressure most corporate legal departments face every year: Retaining outside counsel service levels at same cost. If law firms are increasing their rates, then clients need to understand why. However, all client panelists agreed: Law firms could be better at articulating value.
“For instance, risks that you helped us avoid,” one panelist said. “When you explain that, it makes it easier for us to justify why we’re paying these fees.”
Another panelist added, “We want to understand where you fit in the marketplace. If there is a premium price we need to pay, what’s the reason behind it?”
Law firms need to differentiate themselves and be specific about what kind of value they can provide, whether it’s avoiding risk or increasing predictability. This value should also speak to the client’s needs and pain points, because one size no longer fits all. It is a given that expenses are only going to grow, but if law firms can make their clients understand the value they’re getting for their investment, that number becomes secondary.
Value can also come in the form of flexible, client-friendly fee arrangements. One client panelist shared, “I really like to challenge our law firms to start thinking about alternatives. While there are still clients who pay hourly rates, there will be more of us who won’t continue to do that. There must be a balance between hourly and non-hourly.”
Harnessing data to drive business value
A law firm panelist said, “You don’t realize how much data drives business until you’re actively using it.”
Clients are realizing this and have becoming increasingly hungry for metrics and data, demanding clear reporting on portfolios, trends, and even benchmarks.
It now falls on law firms to gather the right data, organize it and show clients what story the data is telling. “Data helps clients understand trends year-over-year,” one panelist said. “Where am I seeing an increase in particular cases? What type of matter? Which region are we seeing more of them?”
When law firms are able to explain the data in a way that it makes sense and show clients the risks and possibilities, they’re already creating additional value.
More law firms are also looking to synthesize data for resource management and optimization, so resources can be allocated across portfolios in the most ideal way. While some panelists agreed that this was aspirational, there are service and technology providers that have already started developing similar technologies. Clare Hart brought up Williams Lea’s ENGAGE, a digital client platform that automates workflows and facilitates robust reporting. “Our key buyers in law firms can look at the report and say, ‘I understand our work volumes, who’s submitting the request by office, region, time of day, day of the week’,” she said. “You can see utilization at an associate level and determine what’s critical for staffing, because you now have the data to support the addition of resources.”
It’s a challenging time for law firms as they must deal with new ways of working, increasing client pressures, and ongoing economic volatility. To continue to thrive in such an uncertain time, law firms should focus on the value they provide. However, they must distinguish between value propositions and actual value. A value proposition is something a law firm can promote to their clients, but real value is something that only a client can define; it is unique to them. The best way a law firm can know the value of their services is to get feedback from their clients, and it starts by asking: “How can we more effectively partner with you?”
Learn more about the emerging trends in the legal sector and what law firms are doing to stay ahead. Download the eighth annual Trends & Opportunities in Law Firm Outsourcing Survey.
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