The hourly rate is fading slowly…so what next for law firms when it comes to their financial relationship with clients? The current “interesting times” for the profession may soon approach fascinating levels if some trends continue. As client buying power increases so has the need for newer pricing options: fixed, capped, blended, bonus, success-based etc.. But actually, all this is the “now”. So where is next?
Whisper it quietly, but a new phase may have already started. Projects where the client now asks for the law firm’s profitability target for a piece of work or by type of transaction. This demand for increased openness is a product of the increased commoditisation of legal services: a phenomenon that many non-professional sectors have lived with for some time. Indeed, its ultimate form is “open book accounting” where suppliers share all of their financial plans/assumptions with the client and agree a level of profitability for any work to be done.
Sacrilege this may seem to partners in private practice, but firms should expect more of this. The smart ones will prepare for it by speeding up development of their project planning/management systems (to create capability and increase efficiency); honing negotiation skills (an area of weakness for people who traditionally viewed money discussions as rather impolite); and benchmarking for the key lessons learnt from other sectors further along this particular experience curve.
In the short-term, some or more will refuse to play ball…but at their long-term peril?