What does pricing mean in a law firm?
Once upon a time, pricing in a law firm was largely constrained to the setting of bill rates with annual increases of 6-10% and maybe the occasional discount for a firm’s biggest and best clients. In this day and age, however, pricing is considerably more complex amidst steadily declining realization rates: rate freezes, volume discounts, alternative fee arrangements, legal project management (LPM), the ACC Value Challenge.
Realization largely measures the (in)effectiveness of a firm’s pricing efforts. As a stand alone measure, however, it is an imperfect metric as it is actually the output of two distinct inputs which are infrequently presented separately: (1) The delta between a firm’s standard rates and the actual rates offered to its clients net of any agreed discounts and (2) the value of the adjustments taken during the billings and collections process.
Consistent with these two inputs, “pricing” in a law firm can be thought of as existing on both the front- and back-ends of the client engagement:
Front-end: Provide a range of pricing options (hourly and non-hourly) and, when billing on an hourly basis, ensure that appropriate rates and discounts are in place.
Back-end: Limit the adjustments taken during the billing and collections process as a result of unclear scope, ineffective budget management and/or poor communication.