One of the highlights of the first day of ILTACON was the Become a Sophisticated Seller of Legal Services – Standardize Alternative Pricing Models panel with Bill Josten, Senior Director, Enterprise Content – Legal, Thomson Reuters Institute. He was joined by Kofi Mundy-Castel, Solutions Specialist and Product Owner, Fulcrum GT; Sharon Scenna, Senior Director of Solutions Management, Intapp; and Bernardo van der Laat, Managing Director, PredictaBill.
Panelists discussed market trends shaping the legal pricing landscape and shared tips on evaluating and selecting the best provider and pricing model. The interactive session including audience polls and feedback.
Legal Current had the opportunity to speak with Josten after the panel, and below is a recap of the conversation.
legal current: Let’s start with what differentiates a knowledgeable seller from a regular seller. What are the characteristics of sophisticated sellers?
Joste: There really are a lot of things that set them apart, but perhaps the biggest key is knowing who you’re selling to and in what marketplace you’re selling. This means not only knowing who potential customers are, but also really knowing how they operate, how their business operates, what their long-term goals are, and what their board of directors is concerned about. All of these things factor into what they value, and ultimately the key to becoming a sophisticated seller is learning to sell on value rather than price.
This is where the second market factor comes in. We are entering a period in the legal market which should be highly competitive. As demand declines, law firms are going to find themselves back to the pre-pandemic status quo, where what was a new business for one company was a business another company had lost – a mature market, essentially to zero sum. In such an environment, the ability to stand out from competing companies is vital. It’s hard to do if a company is competing on price, because someone can come in and just slash the prices. But a company that sells on its ability to understand and respond to what the customer really values is in a much better competitive position and demonstrates a higher level of sophistication.
CL: What drives law firms to become more sophisticated in the way they serve their clients?
Joste: Many factors motivate the desire to become more sophisticated. First, clients appreciate a more nuanced and sophisticated approach, as it shows an affinity for innovative thinking on the part of the law firm – it’s not just about business as usual. based on billable hours. Second, the market is becoming increasingly competitive, so companies are looking for a way to stand out. Third, a higher level of customer service sophistication is often accompanied by a more sophisticated approach to pricing and business management, both of which can contribute significantly to companies finding additional profitability at a when clients are increasingly concerned about the budgets and expenses of outside counsel. And finally, while this list is far from exclusive, it can provide firms with a platform to more effectively leverage the technology stack they’ve spent years building, improving efficiency and creating better workflow to ease lawyers‘ burden while increasing client satisfaction; so it can be a win-win.
CL: Describe the market trends shaping the legal pricing landscape.
Joste: It’s no secret that the global economy is in a pretty huge state of upheaval. Law firms have been relatively unscathed so far, but many of their clients have already felt the effects or are preparing for it.
Clients have been watching budgets closely for many years now, but this is expected to increase significantly. Accordingly, law firm rates and invoices will be reviewed. At this point, law firm rate increases have come on leaps and bounds, but there’s no guarantee this will continue, especially as clients become more concerned about their own bottom line.
We hear a lot about the need for predictable pricing. During the Great Financial Crisis, we heard a lot about Alternative Fee Arrangements (AFAs) and saw them soar to nearly 20% of law firm revenues. But then they hit a plateau. Now we are hearing new calls for increased use of AFAs, so that percentage may finally start to rise.
Really, for customers, the key is predictability; they generally don’t care too much whether they achieve this through a fixed fee, a capped fee, or some other means. But not all AFAs have the same potential benefit to the law firm. So it’s really incumbent on law firms to find ways to 1) understand what the client wants to achieve, both in terms of outcome and price, 2) offer alternatives that meet those goals, and 3) s ensure that the alternatives presented also have a good mix of risk sharing between firm and client, and potential benefit to the law firm if it performs well.
CL: Let’s talk about the importance of innovation. What are you hearing from companies about implementing innovative solutions to better serve customers?
Joste: It really is an “all of the above” situation right now. Law firms seek out best practices from peer firms and other industries, as well as internal experimentation to try to come up with new offerings. In some examples, this involves new segmentations of legal services where firms examine how cases are handled and priced, then repackage their service offerings to better provide solutions to discrete issues. In others, companies are exploring how technologies like customer portals and the like can better serve customers through improved transparency and collaboration.
Unlike years past – when most companies wanted to emulate what others had done that seemed to work – more and more companies are willing to engage in calculated experimentation and take risks to try innovative things. hoping to stand out.
CL: How do alternative pricing models align with legal services priorities?
Joste: According to the 2022 State of the Company’s Legal Department report, the top priority for legal departments is to improve efficiency. When done right, alternative pricing models can fit incredibly well into this priority. Fixed fees, for example, can incentivize a law firm to innovate and improve efficiency in order to increase the profitability of a case. Hypothetically, a company could charge the same amount of money, or potentially even a little less, to support a case and know that revenue was guaranteed within the fixed fee. If the firm could then produce a favorable result on the matter in less time, both the firm and the client were winners: the client gets their result faster and the law firm is rewarded for finding a better solution. This, in turn, delivers greater value to customers by helping them achieve the larger goal of increasing efficiency while controlling budget.
The tricky part will come when law firms come up with new pricing alternatives, and clients have to accept them. Clients often criticize law firms for not providing enough alternative pricing options, while law firms in turn criticize clients for not wanting to accept anything other than billable hour arrangements.
Perhaps the current state of economic affairs will prompt both parties to revisit this issue and agree to return to innovation and iteration. There is no guarantee that the first effort of new pricing strategies will work. But without lessons learned from retrying, innovation becomes quite difficult.
Check out more recaps of ILTACON sessions on Legal Current.