Talking to Clients About Pricing: Focus on Value
By Mary K. Young
January 04, 2022 | 5-minute read
Business Development Business Development Coaching/Training Competitive Intelligence Client Feedback Content Type Article
Editor’s Note: Budgets and costs are top concerns for legal buyers, which can lead to a demand for discounts. The following article shares insights from the LMA webinar “Developing a Value-Based Approach to Pricing Conversations,” which focused on how law firms can reframe the pricing conversation to focus on what clients truly value.
Large sums of money change hands every day between law firms and their clients, with larger clients spending $100 million or more on outside counsel fees. Because these fees are treated as overhead by business leaders, corporate legal departments are generally under constant pressure to keep fees down, even for complex and sophisticate deals and disputes.
Law firms, on the other hand, are mainly talent businesses — and talent expenses tend to grow annually. This was exacerbated in 2020 and 2021 with demand for lawyer hours up dramatically, bringing about heavy competition for talent. As a result, associate salaries have soared.
This mismatch between clients’ needs and law firms’ cost structure can be challenging to manage, but not impossible. As with many things, regular, candid and data-driven conversations make all the difference. Earlier this year, I moderated a panel discussion on how to best manage the financial aspects of law firm/client relationships. Our panelists included:
- Alex Dimitrief, partner at Zeughauser Group, formerly general counsel of General Electric (GE), and earlier a trial lawyer with Kirkland & Ellis
- Greg Jordan, general counsel of PNC Bank and formerly Chair of Reed Smith
- Tony Licata, chief operating officer of Morgan Lewis
Data-Driven Value Analysis
Our discussion started with a question about how in-house counsel measure the value their law firms provide. Alex and Greg were very clear that results are the first thing clients look at. Value is measured by the law firm’s ability to deliver outcomes the clients are looking for, whether it’s a complex deal, a dispute or a regulatory matter. But clients also measure how quickly and efficiently matters are resolved. These metrics, some subjective and some quantifiable, all play a role in whether clients perceive their law firms as cost-effective.
They also stressed that legal departments are increasingly using data to measure law firm value, comparing costs and results associated with similar matters across law firms.
For example, Greg shared that PNC uses their e-billing tool to capture costs for matters to analyze the value different law firms provide. Although very large companies like PNC and GE have the internal tools and skills to collect and evaluate data, third party vendors are helping smaller companies obtain the same insights about their matters.
When it comes to data, the panel shared that it’s important for law firm relationship partners to understand how it’s being used by clients to evaluate firms. Law firms should analyze their own data to make sure clients are seeing the whole picture related to the value they are providing. Further, law firms must ensure their clients are interpreting the data correctly, for example, by making sure matters are in the right categories so clients are making apples to apples comparisons.
The good news for law firms is that clients welcome, and even urge, their law firms to initiate conversations about price and value.
The Importance of Consistent Conversations
With good data as a foundation, firms are urged to hold regular conversations to learn what is and is not working in the client relationship. This is advice law firms have been receiving since legal marketing first came on the scene. But Alex shared that during his 13 years as in-house counsel, he was only asked for feedback twice. Drawing on their experience as GCs, Greg and Alex shared they would welcome such conversations. These opportunities not only provide insights into how the law firm is doing, but also gives counsel a chance to listen to ideas their lawyers have for them.
In terms of capturing formal client feedback, there are plenty of resources available. However, the value of informal conversations should not be overlooked. Relationship partners can ask a lot of questions about how the client is doing and in what areas they can further assist. These conversations can be extended beyond lawyers as well, including those on the business side of the house, such as chief financial officers, chief marketing officers and practice managers for different teams.
The need for such conversations is particularly true in difficult times, as we saw in the early months of the pandemic when clients and law firms alike were financially stressed. Then more than ever, clients appreciated hearing from their lawyers, especially when they were asked what they could do to help. Alex and Greg shared that they formed a strong relationship, which became a close friendship, during the financial crisis of 2008-2009 when Greg reached out to Alex about how he could help GE more. Lasting impressions are formed in times of crisis.
Law firm partners may be reluctant to have financial conversations with their clients, but these conversations almost always lead to something good. It’s good to remember that many in-house counsel spent time in law firms, so they have an understanding of law firm economics. Tony pointed out that these conversations should start early in the engagement to ensure that the scope and plan for the matter are well understood. Both the law firm and the client will benefit from mapping out how the engagement will go and what the challenges will be.
The good news for law firms is that clients welcome, and even urge, their law firms to initiate conversations about price and value. It is not only appropriate, but it is an effective way to strengthen and expand critical relationships.